26 corporate finance roundup It’s been a year of mega-deals


M&A activity has not reached levels of frenzy, but the year has been buoyant – and the prospects look good for 2015, according to specialists.


In the mid market in particular, the appetite to do deals is high and pipelines are expanding, according to EY.


For corporates, growth is the strategy after five years of relative stagnation in the acquisition market – with 40% of companies anticipating pursuing acquisitions over the next 12 months.


A survey of CFOs, carried out by Deloitte, backed this up, finding that risk appetite was at a seven-year high. Deloitte pointed to the return of hostile bids for companies, and a continued boom in IPO activity.


Another trend was American companies looking to acquire UK targets. A Deloitte survey said: “Much of this increased deal activity can be attributed to the large cash reserves that US companies are holding overseas and, with high tax levies imposed on repatriating cash


back to the US, they have started spending it more aggressively in Europe.“


Conversely, there’s a significant number of UK domestic dealmakers acquiring overseas assets, according to EY.


The volume of deals in the first three-quarters of 2014 was up slightly (4.9%) to 2,244 when compared to this point last year and overseas deals completed by UK companies saw a 26% increase over the same period. The cumulative value of all deals completed over this period has also risen by a massive 110% to $272.9 billion, driven primarily by two large deals in life sciences and telecoms.


Jon Hughes, EY’s head of transaction advisory services for UK & Ireland, continued: “This year has been synonymous with so called mega- deals and, while these have been far from prolific in the UK, these multi-billion-dollar deals are having a positive ripple effect on the domestic M&A market. What they have done is create confidence in


The art of letting go


You’ve decided the time is right to sell your business. In many cases a potential buyer will recognise that a portion of the value is linked to you personally and will want to tie you in. Charles Whelan, managing partner at HW Corporate Finance LLP, looks at how this might work and what you should prepare for


Planning a timely exit is a critical part of looking to new horizons for owner-managers. The sale of your business will often bring mixed emotions. Leaving after decades of nurturing a business is no simple matter. You may be ready to close the door behind you and start fresh, be it in retirement or another venture, but it also means coming to terms with letting go.


In an ideal world, owners would often just like to walk away. However, it’s extremely common for buyers to want the owner- manager to stay on for a while in some capacity. Periods of up to two years are not unusual.


What are the personal implications of staying on after a sale? Having been their own boss, people who


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founded or have run their own business are often not natural employees, so they should think carefully about how that relationship will work. Those who like to work very flexibly with regard to their hours or location need to consider whether that flexibility can be maintained.


If you do not want to be an employee, a consultancy arrangement – agreeing a number of days a year to be worked as convenient for the outgoing owner – may be more palatable.


What is crucial is to agree upfront the exact details of your involvement after the sale with your preferred buyer – right down to the ’how, when and where’ you will work – to avoid


unreasonable expectations and misunderstandings. Deal structures frequently involve some element of deferred and/or contingent consideration. In these situations, there is the added complexity of ensuring you are comfortable with planned and future changes given that you have a continuing element of capital at risk. Remember, the person you are dealing with at the buyer may change so make sure the arrangement is crystal clear and formalised, rather than relying on a gentlemen’s agreement.


Be mentally prepared for seeing changes to your business as the new owners make their mark – including decisions you might not agree with. Adapting to changes


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – DECEMBER 14/JANUARY 15


M&A and trigger transaction activity further the down the deal chain.“


Overseas assets


The data highlights UK dealmakers’ increasing appetite for overseas M&A, with the volume of assets abroad being acquired by UK companies increasing by 26% over the first three quarters of 2014, from 505 to 635, with value increasing by a huge 187% from $33.1 billion to $95.2b.


Hughes added: “The appetite for overseas assets by UK companies confirms the UK as a significant player in the global M&A market. Although the UK economy is improving, UK businesses are also looking for growth in new markets.“


Can M&A compete with IPOs?


EY reveals that, while earlier in the year a significant factor holding back increasing levels of M&A was the buoyant IPO market with dealmakers struggling to compete on price, valuations are now cooling slightly.


Hughes continued: “Earlier in the year it was suggested that the resurgent IPO market was helping to inflate asset prices and limiting corporates and PE houses ability to compete and transact. IPOs are now being far more sensibly priced which may boost rainmakers’ chances of securing a place at the deal table, to bid for assets that earlier in the year could have been a pure IPO play.“


Sentiment is improving but risks remain


Stable asset prices as well as increasing confidence in stability of the global economy are encouraging a more buoyant outlook for M&A, but EY chief economist Mark Gregory heeds a cautionary note.


He said: “Equally, it is important to remember that none of the risks have gone away. There is a strengthening trajectory of activity, both in the UK and globally, with plenty of IPOs, M&A and PE activity but there is certainly no return to a boom period.“


in these relationships requires mental preparation and a degree of distance on your part.


TOP TIPS


• Prepare your business in advance if you hope to sell it one day, paying particular attention to succession planning to decrease reliance on you as an individual.


• Consider engaging an external adviser early to gain an objective look at your business and give you time to position it for sale.


• When negotiating with potential buyers, agree upfront the terms of any involvement going forward and in clear terms.


• Mentally prepare for changes to the business and to your relationship with staff.


• Cultivate a degree of distance. Details: www.hwcf.co.uk


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