Not many managing directors and financial directors of small or medium-sized
businesses will know a great deal about the M&A business. We all read about
companies being bought and sold for mind-boggling sums, and entrepreneurs
picking up hundreds of millions, but what should you do when you receive an
offer for your company, or are looking to buy another business?
One of the first things to think about is hiring an adviser – but choosing
who to appoint can be difficult. These days, investment banks compete with
accountancy firms and specialist boutiques in the race to bring your business to
the M&A market.
Chris Stibbs, group finance director of the Economist Group, says advisers
offer crucial knowledge of the corporate finance game.
‘The one thing that advisers do is to live their life doing these things,’ he
says. ‘They understand the tactics of an approach and how to play the game.’
Nicola Horton, a director in corporate finance at mid-tier firm Smith &
Williamson, says that advisers have vital experience of the kinds of
transactions you are going to be involved with.
‘An FD or MD of an SME is unlikely to have a dedicated M&A or corporate
finance specialist on staff, and so needs to engage someone with the requisite
skills, knowledge and experience when faced with an imminent corporate
transaction,’ says Horton. ‘A good lead adviser should be able to “ring-master”
the transaction, help the FD or MD focus on the most important issues, and
suggest ways of overcoming obstacles, based on their specialist knowledge and
Some advisers specialise on the buying side, and some on the selling side, so
that also needs to be borne in mind, she says.
‘When it comes to SMEs, the right adviser does this as his or her day job.
FDs may know their own industry very well but they may not have undertaken a
transaction ever before.’
There are several advantages certain advisers will have. There may be an
international buyer, for instance.
Jon Breach, a corporate finance partner at BDO Stoy Hayward, says that
private equity contacts can also be important.
‘Any transaction involving private equity is extremely complex.’
With such deals, the private equity buyers may be backing the management
team, creating different levels of tension.
One thing that Stibbs warns companies to be aware of is what is driving the
transaction. If it is an industry figure, you will need to understand their
approach, he says, rather than the dynamics of the corporate financiers.
Apart from anything else, advisers will know who is looking to buy at the
moment. They will have contacts with private equity businesses and other outfits
looking to invest in specific areas. And, on the selling side, they will know
how to drum up interest from several parties to attract the highest bids.
In any M&A transaction, there will be a whole raft of advisers helping
out. The lead adviser will draw up a roster of due diligence specialists, tax
advisers, lawyers and perhaps reporting accountants if there is an initial
public offering (IPO)to consider.
Although clients may already have some of these things in place – a lawyer,
for instance – corporate finance specialists are crucial in helping ensure that
every ‘i’ is dotted and every ‘t’ crossed.
They will also take a lot of the pressure off senior staff, allowing them to
get on with running the company.
‘There’s nothing worse on a deal than for the owner’s business to
underperform during a sale process,’ says Breach.
So how do you find an adviser?
‘You can’t just look in the Yellow Pages,’ Horton points out. She
says that introductions often happen by personal recommendation. Accountancy
firms tend to generate leads through their other business lines, so it wouldn’t
be unusual if your adviser had also acted as auditor or tax adviser to the
Breach says that you are unlikely to hire a Goldman Sachs unless you are
looking to shift the company for £1bn or more. Below the large investment banks,
you could also look at the Big Four, which tend to handle quite large
transactions, and all manner of firms on the way further down the list. Stibbs
says the big investment banks can be invaluable if you are listed since, unlike
other advisers, they will be able to help with raising funds.
‘Investment bank advisers have a great value in the public environment,’ he
Stibbs plays down persistently voiced fears that advisers will try to push a
deal regardless of whether it is suitable for the company.
‘I don’t think I have experienced that,’ says Stibbs. ‘I have always had a
reasonably balanced approach. They have a reputation in the market to think
about as well.’
One thing Stibbs does admit is that they will tend to follow a cyclical
approach to valuation.
‘Advisers get into cycles to advise on value, and are precedent-led,’ he
says. ‘They are not looking at fundamentals. The management should be looking at
what a company is worth to us.’ Hiring an adviser may seem like just another
costly burden to take on when you’re trying to pull off a deal, but when you are
knee-deep into the transaction while still trying to run the business, you will
soon realise that it would be impossible to handle it without one.
How to pick an adviser
If you’re looking for an M&A adviser, Nicola Horton suggests asking
‘Ask your business contacts or existing professional advisers – perhaps your
lawyer, your auditor – for recommendations,’ she suggests. ‘Do some research.
Look at who has advised on previous transactions comparable to the one you are
She also suggests asking what general experience potential advisers have, and
perhaps requesting references from their previous clients.
Are they busy? ‘Can they staff your transaction to the level it requires?
Will the person you meet who convinces you to pick them actually be the one
leading the transaction?’
Jon Breach says that one of the worst scenarios when hiring an adviser comes
from putting the wrong fee structure in place.
You don’t want people paid a share of any deal over £50m, say, if all the
bids are undershooting that by some distance.
You need your adviser to be as motivated to get the best deal as you are.
Finally, you’ve got to get on.
Horton says: ‘Do you trust them? Do you like them? If you are going to be
spending long periods of time with these people, are you actually going to get
on with them?’
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