34 mergers & acquisitions


How critical is property and the workplace to M&A activity?


With the value of global mergers and acquisitions activity reportedly hitting $1.7 trillion in the first six months of 2014 there is a clear indication of corporates preferring immediate growth via M&A activity to improve market share, rather than organic growth writes David Thomas, partner, Vail Williams LLP


Historically, for many corporates during mergers or acquisitions, property leases were the Cinderella, often forgotten about until problems arise, an approach which stores up problems for the future. However property and the workplace present significant opportunities not only to cement the integration of organisations but also to add significant value as well as reducing cost.


In the first instance, due diligence is key to warrant no unexpected surprises later on, ensuring that there is a full understanding of all properties and their tenures, annual costs, lease lengths, break clauses and expiries.


Secondly, it is important to delve into potential hidden costs and


identify possible quick wins – Is there the right levels of accruals for dilapidations? Are business rates properly assessed or can they be appealed? Are all legal and regulatory requirements in place in terms of fire risk assessments, asbestos registers, M&E maintenance and testing, type of air-conditioning and cleaning or maintenance contracts? All of which is very dry and boring, but vitally important.


Much more interesting, however, is the integration of the new organisation. The workplace can be absolutely fundamental in driving value of the M&A activity by engineering collaboration and improving communication between previously disparate


teams. Careful space planning and workplace strategies can ensure fast integration and help set the route towards the desired new goals and objectives.


From a legal perspective it is important to consider – in advance of any merger - that there is a right


Taking the lead: vendor-financed M&A


Penningtons Manches corporate lawyer Elizabeth Yell examines the increasing trend towards seller financing as a means of closing business transactions


The typical management buyout (MBO) structure will usually involve the management team setting up a new company to make the acquisition of the target. The acquiring company will often be financed by management and then a combination of private equity funding and bank debt.


However, given the lack of availability of bank finance over the past five years, one alternative solution has been for exiting shareholders to fund part (or all) of the buyout themselves. Although this structure means that sellers will have to wait for the proceeds of sale to be paid over a period of time, it is generally welcomed by retiring owner-managers as a structure to secure the future of their business and allow for succession planning.


As with the usual MBO structure, on a vendor-financed MBO, the


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selling shareholders will still sell all their shares to the buyer on completion (often to preserve the benefit of entrepreneurs’ relief) and sometimes ’reinvest’ a proportion in the acquiring company. Some, or all, of the purchase price will then be deferred for a period of months or years. This deferred payment for the shares will generally take the form of a loan (often secured) from the exiting shareholders to the buyer. Ordinarily, the buyer will satisfy the loan by making payments to the exiting shareholders upon receipt of dividends from the target or via an inter-company loan.


Where a large proportion of the sale price is left outstanding as deferred consideration, it might be appropriate for sellers to think about ’step-in rights’. ’Step-in rights’ will often provide for sellers to take back control of the target company, or even


reacquire their shares at nominal value. This may provide a remedy for sellers in the event that the buyer defaults on the repayment of the deferred consideration.


In the situation where exiting shareholders maintain a shareholding in the target company, a detailed shareholders’ agreement and tailored set of articles of association regulating the relationship between the shareholders of the buyer will be required.


If a seller is to


maintain a significant interest in the target business, however, he also may not be able to benefit from entrepreneurs’ relief.


In any event, tax advice


should be sought early in the process so that the transaction can be structured in a way that optimises the tax position for the parties.


Penningtons Manches LLP has extensive experience advising


THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2014


to share with group companies and practically that there is a right within the lease to put up new corporate signage at day one.


Caution, careful planning and communication is important. Key staff retention should be high on the agenda along with careful consideration of office locations and employee commuting.


Finally there is the opportunity to mitigate costs by disposal of surplus accommodation further to combining locations and it must be remembered disposal programmes cannot be implemented until all consultation periods have passed.


How ever big or small the merger or acquisition, property and the workplace is absolutely fundamental to ensuring success.


Details: David Thomas 0118-9097404 dthomas@vailwilliams.com


For more information about Vail Williams LLP, visit: www.vailwilliams.com


both management and exiting shareholders on MBOs and vendor- financing arrangements, and would be pleased to hear from you if you would like to discuss any aspect of this article in more detail.


Details: Elizabeth Yell 0118-9822640 elizabeth.yell@penningtons.co.uk www.penningtons.co.uk


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