Deal shakers and breakers

Corporate finance team member James Wood, shares his thoughts on the mergers and acquisition market

Despite all the doom and gloom you hear about Brexit, the US and China the surprising fact is that the UK M&A market remains buoyant with valuations for good businesses remaining surprisingly strong. Fund raisings amongst PE houses have also been at record highs and anecdotally we are hearing from our contacts that there is a shortage of good businesses to buy.

However, there is no doubt that some deals are taking longer to close which can in some case be directly linked to political and economic uncertainty. Sadly in the world of deals, any delays means there is an increased risk that your deal will not happen.

So while now might still be a good time to market your business it is vitally important that you take expert advice and control how your business is positioned. This mitigates those risks that might cause delay in the sale process.

We have set out below common ‘deal shakers and breakers’ we at Roffe Swayne have witnessed over the 25 years we have acted as corporate finance advisors and how we can advise you to best manoeuvre around these pitfalls:

  • ‘Skeletons in the closet’ – the skeletons in your closet may be a nasty surprise for any prospect buyer. Therefore a seller needs to ensure that these are identified, the risks of these are mitigated and the narrative is controlled by the seller. Part of preparing for the skeletons involves gathering the information required for due diligence ahead of time and ensuring this is carefully examined prior to disclosing to any potential purchasers.
  • Lack of buyer commitment – there is a risk that a potential buyer is motivated only to gather inside information on a competitor. It is therefore important to ensure the right level of information is shared to allow an informed offer to be put forward but ideally before any key USPs are given away. As valuation experts, we can advise on the level of information a buyer may require.
  • Time restrictions on sellers – The process of selling is time consuming. Advisers, like Roffe Swayne, work hard to share the burden of a sale, however, no one will know the business as well as the owner/manager so inevitably the sales process will be slowed by time restraints of owners. The planning ahead of sale to ensure the information required is ready in good time helps limit the delays in information gathering and time burden for the key management.
  • Differing valuation expectations between a seller and buyer – it is important to ensure that as part of agreeing HoTs/LOIs, the methodology for reaching the purchase price is clearly stipulated to ensure that each side is clear about what in the business is valuable to them.
deal shakers
  • Difficulty for buyers to get funding arranged – if an acquiring party is having to get debt funding or 3rd party equity funding, the process of this can slow a deal to a halt. This tends to be towards the end of a deal, but if funding is not secured a deal can fall at the last minute. It is therefore important to diligence any buyers and their funding arrangement before diving into a sales process.
  • Over reliance on exiting owner manager – a key problem for sellers is that, if they are intending to leave the company after a sale, their experience and know how walk out of the door with them. Sometimes the level of reliance on owner managers only comes to light as part of due diligence. In gearing up for a sale, sellers can look to develop and nurture a 2nd tier management team as soon as possible or when conducting a search ensure that the acquiring party is equipped to run the business in the owners’ absence.
  • Not delivering on budget/forecast – it is important to be realistic in any forecasts/budgets that may feed into a sales document. Buyers are acquiring the future potential of a business and so if they see businesses failing to hit projections leading up to completion a seed of doubt is sown around the value of the business going forward. Roffe Swayne are experienced in forecasting and we regularly build flexible and robust models.
  • Inconsistent information from vendor – it is key to control the narrative of any negative information that may emerge, but it is vital to be honest and clear in what is shared. As well as the fact finding due diligence provides, there is a level of trust that a buyer and seller must give one another and if this trust is broken this can be terminal for your deal. As part of the due diligence process we can manage the information flows to ensure we are providing consistent and clearly presented information.

If you are thinking about selling or acquiring a business and want to avoid any of the ‘deal shakers’ noted above please get in touch with one of our corporate finance team.

For more information

For more information on our transaction service, please contact either:

Mark Leigh or James Wood, or call us on:

01483 416232