Calendar An icon of a desk calendar. Cancel An icon of a circle with a diagonal line across. Caret An icon of a block arrow pointing to the right. Email An icon of a paper envelope. Facebook An icon of the Facebook "f" mark. Google An icon of the Google "G" mark. Linked In An icon of the Linked In "in" mark. Logout An icon representing logout. Profile An icon that resembles human head and shoulders. Telephone An icon of a traditional telephone receiver. Tick An icon of a tick mark. Is Public An icon of a human eye and eyelashes. Is Not Public An icon of a human eye and eyelashes with a diagonal line through it. Pause Icon A two-lined pause icon for stopping interactions. Quote Mark A opening quote mark. Quote Mark A closing quote mark. Arrow An icon of an arrow. Folder An icon of a paper folder. Breaking An icon of an exclamation mark on a circular background. Camera An icon of a digital camera. Caret An icon of a caret arrow. Clock An icon of a clock face. Close An icon of the an X shape. Close Icon An icon used to represent where to interact to collapse or dismiss a component Comment An icon of a speech bubble. Comments An icon of a speech bubble, denoting user comments. Comments An icon of a speech bubble, denoting user comments. Ellipsis An icon of 3 horizontal dots. Envelope An icon of a paper envelope. Facebook An icon of a facebook f logo. Camera An icon of a digital camera. Home An icon of a house. Instagram An icon of the Instagram logo. LinkedIn An icon of the LinkedIn logo. Magnifying Glass An icon of a magnifying glass. Search Icon A magnifying glass icon that is used to represent the function of searching. Menu An icon of 3 horizontal lines. Hamburger Menu Icon An icon used to represent a collapsed menu. Next An icon of an arrow pointing to the right. Notice An explanation mark centred inside a circle. Previous An icon of an arrow pointing to the left. Rating An icon of a star. Tag An icon of a tag. Twitter An icon of the Twitter logo. Video Camera An icon of a video camera shape. Speech Bubble Icon A icon displaying a speech bubble WhatsApp An icon of the WhatsApp logo. Information An icon of an information logo. Plus A mathematical 'plus' symbol. Duration An icon indicating Time. Success Tick An icon of a green tick. Success Tick Timeout An icon of a greyed out success tick. Loading Spinner An icon of a loading spinner. Facebook Messenger An icon of the facebook messenger app logo. Facebook An icon of a facebook f logo. Facebook Messenger An icon of the Twitter app logo. LinkedIn An icon of the LinkedIn logo. WhatsApp Messenger An icon of the Whatsapp messenger app logo. Email An icon of an mail envelope. Copy link A decentered black square over a white square.

P&J the business: Both sides must take methodical approach to M&A

Post Thumbnail

Acquirers these days are more likely to take a qualitative approach than a quantitative one.

They want deals that will deliver value over the long term, and are willing to look past the short-term havoc caused by coronavirus and Brexit.

A more focused M&A strategy and level of diligence, therefore, comes into play – but there are many possible pitfalls for companies.

An acquisition can swiftly become an expensive and fruitless process if preparation and clear objectives are lacking at the outset.

Early engagement with professional advisers in terms of legal, tax and financial input – in addition to robust commercial analysis in the boardroom – is essential.

After a possible acquisition has been identified, the bones of any deal should be committed to writing in a heads-of-terms document which will serve as a roadmap for the legally binding contracts to follow.

More time spent here thrashing out detail can often save time and ensure everyone truly is “on the same page” regarding the terms of the transaction.

Legally binding exclusivity for the prospective buyer is key – without that, the likely significant investment in professional fees and management time and energy could be wasted.

Discussions

Also, discussions with potential deal funders should progress from inception of the project.

Organising funding takes time, even though committed terms will not materialise until much further on in the process.

At the heart of any deal is the due diligence exercise, which is the buyer’s detailed investigation of the target business, “warts and all”.

The nature of the target business will dictate the key areas of due diligence interest. Typically high on the agenda will be the likes of corporate structure, the nature and ownership of intellectual property rights, the terms and conditions of key employees, key contracts, occupation or ownership of business premises, any litigation or claims, environmental matters, pension obligations and statutory compliance.

Acquirers will also wish to investigate issues related to Covid-19, such as compliance with regulations, use of the Coronavirus Job Retention Scheme and/or the Coronavirus Business Interruption Loan Scheme, and generally the deferral of liabilities such as rent or tax. On completion of satisfactory due diligence, the parties will move to the negotiation of legally binding transaction documents.

Warranties and indemnities

A buyer will wish to ensure they have the benefit of suitable warranties and indemnities to support the acquisition price.

Careful consideration should be given to the extent of non-compete and non-dealing/solicitation provisions on the vendor and to what extent key employees in the target business are tied in.

Anyone considering an acquisition should perhaps bear in mind the legal principle “caveat emptor” – let the buyer beware. But robust early analysis, planning and professional advice will greatly assist a new owner to navigate the M&A course safely.

From a seller’s perspective, the first hurdle for an owner-managed business tends to be the emotional one. This is natural but for those with strong ties it can lead to a tendency to do nothing – which is the worst course of action.

As always, engaging professional advisers at an early stage is crucial.

Valuation and structure

A disposal may take several forms. It could be part of succession planning within a family, a management buy-out or a business being exposed to the market for sale.

Due consideration should be given as to what is most likely to meet the vendor’s objectives but, in each case, the valuation and structure of the deal is key – as is tax advice.

Suitable non-disclosure agreements should be put in place before any discussions start or information is shared with potential buyers.

Once the due diligence process is up and running, momentum is key – and from a seller’s perspective being able to provide accurate information promptly is imperative.

Advisers have all seen “deal fatigue” set in – as a rule the longer the sale process runs, the higher the chance of something going wrong.

Proactive management of the transaction is a necessity.

Negotiation of the legally binding transaction documents will put the flesh on the bones of the heads of terms and it’s fair to say “the devil is always in the detail”.