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M&A and investment in the TMT sector
Most entrepreneurs spend a large part of their lives building their business, with the aim of creating significant wealth through a sale process in due course, says Darren Thompson of Meridian
For many of these individuals this will be a one-off event of which they will have limited experience. Choosing the most appropriate advisers is therefore crucial, not only to a smooth process but also to ensuring their financial security moving forward.
For businesses in the telecommunications, media and technology (TMT) market, which is fast moving both in terms of technology, infrastructure and revenue models, often the overall value of technology is as much a reflection of the distribution channels to market, as it is the completeness of the product or service.
As a result, the sale of a business within the TMT space can be very different to running a traditional company disposal process. Valuation methodologies are different to conventional business models, often being more focused on the acquisition of non- balance sheet items such as IP, software and the like than on the acquisition of profit streams.
For this reason, understanding technology from an investor’s and an acquirer’s perspective, as opposed to a pure accountancy- led approach, is crucial.
Meridian’s technology focus
Meridian has a significant track record working with technology and telecoms-related businesses. Technology mandates are led by partner Darren Thompson, who previously served on the Hi Tech Advisory Committee of the BVCA, responsible for technology investments at Barclays Ventures, and was a founder and principal of the NatWest IT fund.
Meridian has been involved in a number of international technology disposals including the disposal of Hamble-based Quantum Research Group to
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – NOVEMBER 2014
Sharing growth with employees
Growing technology companies often want to use their shares to incentivise employees, says Penningtons Manches senior associate James Went
The challenge is to think creatively to maximise the incentive value while minimising the adverse tax consequences and generally looking after the interests of shareholders.
Darren Thompson
US chip manufacturer Atmel; the sale of Andover-based digital consultancy firm RMA to Japanese telecoms giant NTT Data; and the disposal of London-based dark fibre network operator FibreSpan to US telecoms firm Level3 Communications.
In addition to disposal mandates the partners of Meridian hold a number of senior board roles and also manage an early-stage technology fund, Meridian Growth Capital (MGC).
Established in 2009, MGC focuses on supporting ambitious management teams with exciting products and has invested in a wide range of technologies including media, medical devices, social media, data storage and online travel.
Having experience from the approach of an acquirer, adviser, investor and board member allows members of the Meridian team to understand issues from every perspective and achieve a successful outcome.
Details: 0844-225-8800
Enterprise Management Incentives (EMI) options are usually the most advantageous type of share incentive scheme. They combine a high level of flexibility together with favourable tax treatment that includes a relaxation of the qualifying conditions for Entrepreneur’s Relief on a disposal. However, the company or the employee may not always qualify – possibly because the company has grown too big.
An alternative is “growth shares“. These are a separate class of shares which only entitle the holder to benefit from growth in the company after the date of issue or when a particular exit value has been achieved. The effect of these qualifying criteria is that, on issue, the value of the shares is substantially lower than that of the ordinary shares in the company, perhaps purely nominal.
The employee can subscribe for the shares at minimal cost and, if the criteria are achieved, share in the success of the company with any gain on the shares being taxed at capital gains rather than income tax rates. Structuring these growth share schemes is a complex task and there is a degree of risk because the value of the shares cannot be agreed with HMRC before they are issued and HMRC will argue for income tax treatment on a disposal if the rights are not properly structured. However, they have significant advantages over unapproved options and other alternatives to EMI.
Since employees will hold growth shares from day one, companies should think carefully about how they will manage the issues that can arise from having employee shareholders (as opposed to options which can be cancelled when the employee leaves). Typically, if an employee shareholder leaves the company, the growth shares should be recovered from the employee so that value is not going to someone who is no longer contributing to the business.
Robust and flexible provisions need to be included in the agreements with employees and the company’s articles of association in order to ensure that those shares can be brought back into the company’s control and perhaps be redistributed to other employees. Recent changes in company law have made buying back shares for this purpose substantially easier.
For more information on how technology companies can implement growth shares and other employee incentive arrangements to deliver best value for the business and its shareholders, contact Penningtons Manches’ corporate team.
Details: James Went 01865-722106
james.went@penningtons.co.uk www.penningtons.co.uk
www.businessmag.co.uk
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