Awards 2005: corporate finance deal - PwC

The winner of our Best Corporate Finance Deal of the Year Award is
PricewaterhouseCoopers for its handling of the ground-breaking demutualisation
of Interflora and its acquisition by a new company backed by 3i, Interflora
management and members.

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‘It was impressive rescuing a business that might otherwise have disappeared.
PwC was able to persuade the shareholders -­ the florists -­ who wouldn’t have
understood the deal, to go for it,’ the judges said.

The Interflora deal was unusual because the company, which had been a trade
association for 81 years, was limited by guarantee rather than shares. In order
for the demutualisation to go ahead, 75% of the company’s 1,800 members needed
to vote in favour.

There were further complications for PwC. There were different types of
members, with different voting rights. A formula had to be devised to determine
the allocation of consideration to members, based on factors including their
lengths of service and their turnovers.

The members were not motivated by price alone, and the eventual investor, 3i,
was not the highest bidder. The board and PwC shaped their proposals in response
to polling and carried out more than 50 roadshows to explain them to members.

Understanding the needs of Interflora’s members required PwC to communicate
with them on a daily basis in plain English. The corporate finance team also had
to overcome a vocal minority of members who were opposed to the deal.

The vote turned out to be a success. Some 86.4% of voters approved the deal,
and the turnout was 83.2%. Each member received windfalls of between £5,000 and
£12,000, while 3i took a 63% share in the business.

The investment agreement was unusual as it was not financed by debt at
completion. It also allowed existing members to roll over a stake in the new
company if they wished, and included a mechanism to compensate members if a sale
occurred within 12 months of the transaction.

The deal also assured members that their terms of business would not alter
dramatically after the deal. Increases in subscription, for example, were
limited to inflation within the first three years.

‘This complex and ground-breaking deal required total commitment,
determination and clear, robust advice from our corporate finance advisers,’
said Steve Richards, the chief executive of Interflora. ‘This is exactly what
the PwC team delivered.’

Richards had estimated that the group needed at least £15m of investment over
the next four years to face competition from big supermarkets. By obtaining the
investment from a private equity investor rather than a corporate buyer, the key
members of management were retained and could keep a stake in the business.

In its submission, the corporate finance team, led by Stuart McKee,
emphasised that it had followed the takeover code as best practice, even though
it was not mandatory.

A complex deal was carried out transparently and great efforts were made to
understand and react to the motivations of the members. The team used its
expertise and experience in retail equity to deliver benefits that the company
would not otherwise have enjoyed.