Money Matters
better than anyone else it is important to also get professional guidance. You could consider using an adviser for anything from drawing up a list of potential targets, using an accountant to assess the target business’ value, or simply having an independent detached second pair of eyes look at the proposal. Valuing a proposition is a particularly hard assessment to make and basing valuations on historic financial accounts, which are primarily prepared to ensure tax efficiency, can be particularly difficult. Your accountant or general business advisor’s opinion can be an extremely valuable ‘sense check’ on what you are proposing. The ‘second pair of eyes’ enables challenge and reflection to the eventual decision maker that can prove invaluable. You may need to involve a solicitor in your due diligence. They will look at things such as whether the business owns its assets, whether it has any legal actions outstanding against it and how any current customer contracts might be affected. Professional advice might sound like an expensive involvement but a merger or acquisition is likely to be a major decision and may involve significant funds. It is a decision that you want to
1 Million
get right and so experienced opinion means more heads working together, which should be better than one! What if I decide to go ahead? If at the end of the investigation process and consultation with advisers you decide to proceed then comes the really interesting bit – the approach and the negotiation. Advice on how this should be tackled will very much depend on what you propose and what the benefits are to you and, in the case of a merger, obviously what are the benefits to the ‘target’ business. You would have to set out clearly how you would propose the two businesses can create business advantages leading to increased revenues and most importantly profit. With takeovers the price offered will be critical to success. Despite your hard work in analysing a proposal and any spend you have had with initial professional advice the acquisition price must be right, otherwise walk away. Do not get emotionally swayed and at the end of the day this is a business decision, pure and simple. If the price to you is too high then it is not right for you, or it is not the right time to do it. Overpaying may mean the whole
Graph - Value of Acquisitions of UK Companies by other UK Companies
25000
20000
15000
10000
5000
2012 02
2012 01
2011 04
2011 03
2011 02
2011 01
2010 04
2010 03
2010 02
2010 01
2009 04
2009 03
2009 02
2009 01
2008 04
2008 03
2008 02
2008 01
2007 04
2007 03
0
benefit that you are seeking for the future may be jeopardised, and perhaps even your core business may be put at risk. If the takeover is of a company it is simply a question of acquiring shares and with smaller companies those shares will likely be in the hands of the key individuals within the business so their attitude to ‘losing’ their business is obviously going to be central to your success. If the entity is a sole trader or a partnership the approach tactics may be simpler but choosing your moment and the environment for the approach will be pretty important too. The point of this article is to perhaps challenge or stimulate business thinking in what are extremely difficult economic and trading times. It is natural when business conditions are tough to think defensively and be very cautious about opportunities that may present themselves. I am not suggesting for one minute that caution should be thrown to the wind but as we are likely to be facing an on-going difficult trading environment for some time the well thought through amalgamation of businesses, and the benefits that can be derived may increasingly be the best route for growth. It is essential for the recovery of the economy generally that companies not just survive but grow, and one of the best ways of perhaps doing this currently is by merging or acquiring. The above graph shows the fluctuations in acquisitions activity between UK companies over the past five years. We appear to be trending into a bit of a trough in the figures for the first half of 2012 but as poor trading conditions continue I have no doubt that activity will ‘bounce’. Could it be that your business may become part of that? As I said at the outset mergers or takeovers will not be possible or ideal for all but do not summarily dismiss the possibility that it could suit you just because you are not a BAE Systems or an Apple. You will no doubt be reflecting all the time on what growth opportunities there may be out there for you and the combining of businesses is a very legitimate possibility for the successful and ambitious businessman to keep somewhere in their mind.
www.sussexbusinesstimes.co.uk 37
P 34-39 Mergers SBT.indd 37
02/11/2012 09:10