Most corporate finance deals can take months to put together. When Deloitte & Touche's Midlands office was called in to aid the Phoenix consortium buy Rover from BMW, it took the firm just nine days.
It is a feat most corporate finance specialists are looking at with wonder. To seal the purchase of a company turning over 1.5 billion pounds in such a short time is virtually unheard of.
‘We didn’t get a lot of sleep,’ says Richard Edwards, corporate finance partner at Deloittes, and a leader of its Phoenix team.
Over nine adrenaline-fuelled days, a Deloittes team of 25 helped clinch a deal which Alchemy had laboured over and failed to complete over five months. The ultimate reasons for their failure remain under wraps. Phoenix, with Deloittes, pulled it off.
Deloittes’ involvement in the Rover deal began when Phoenix was still being touted as outside bets. Negotiations between BMW and Alchemy were continuing apace as trade secretary Stephen Byers pleaded with the German carmaker to have a look at the Phoenix bid.
Then the unlikely happened. On Friday 28 April, Alchemy pulled out of negotiations with the Munich-based car giant. As it turned out the split, despite press speculation, was irrevocable and Phoenix was back in the game.
Deloittes’ involvement had, however, already begun. Prior to the collapse of the Alchemy bid senior corporate finance figures from the firm had met with John Towers to discuss what part the firm might play in a bid. Ironically, there was little optimism around at that time.
‘At that stage everybody felt to some extent that the deal with Alchemy was a done deal and that we were coming up on the rails,’ Edwards says.
But shortly after Alchemy’s withdrawal from the race Deloittes was looking at draft legal papers that might form the basis of an agreement. They were in fact much the same agreements as were drawn up for Alchemy but with some significant adaptations by BMW’s London lawyers Norton Rose.
Throughout the holiday weekend, the team pored over the papers and then on Bank Holiday Monday, while the rest of the country enjoyed a well earned break, a team comprised of Phoenix consortium members and Deloittes advisers travelled to London to go over BMW’s books for the first time. The firm’s advisers were now in the thick of the action and would have no respite for the next eight days.
With speed very much of the essence and the pressure on the Deloittes team had to move fast but avoid making mistakes.
Edwards points out that systems were put in place to ensure nothing remained unchecked. Daily briefings for the team were organised, internal review procedures put in place, key drivers were identified and objectives set and carried forward.
Under the time constraints there must have been concerns about making pressure-induced mistakes, but Edwards says the team always remained on top.
‘It is very surprising what people are capable of under pressure when the adrenaline is flowing. The clarity of thought in a compressed timetable is remarkable,’ says Edwards.
Key issues had to be addressed. One of the major concerns was the transfer of ownership of several assets, including Land Rover, which came under the Rover group but had already been sold. The last thing Phoenix wanted at this stage was to find itself with massive tax liabilities as a result of the sale of assets by somebody else.
Next, Deloittes had to take a detailed look at the company’s pension provision and report on its position.
But in the time allowed any due diligence report would have had to be curtailed, and instead the focus switched to interviewing key personalities and checking ‘essential’ papers rather poring over reams of documents and tables.
As one commentator points out: ‘It would be a process of providing comfort.’ A high-risk strategy but given the time constraints it was unavoidable. Six weeks work had to be compressed into just a few days.
Further examinations would need to be made of supplier problems and payment records.
The work culminated in a 48-hour stint in which none of the team slept and only ended at 8.30am on Tuesday 9 May when Phoenix signed contracts with BMW. All that was left was for John Towers to make his way to Longbridge as the returning hero.
Despite the finance, and reported Teutonic scepticism, Deloitte’s major problem was battling with time.
‘To start work and complete in 10 days was logistically the greatest problem,’ acknowledges Edwards.
‘If you were starting a deal of this size from cold it would probably take three to four months.
‘Most corporate finance people will find it astonishing that we completed in just 10 days.’
TIMELINE
16 March: Agreement between BMW and Alchemy for the purchase of Rover.
14 April: John Towers, former chief executive of Rover, announces the Phoenix bid for failing car company with much fanfare and pleas from trade secretary Stephen Byers for BMW to take him seriously.
27 April: Alchemy walks out of talks with BMW opening the way for Phoenix.
28April: BMW appears to snub the Phoenix bid for Rover. Meetings take place between Phoenix and Deloittes who are putting together the finance and planning what they could do if the opportunity arises for another bid to buy Rover.
29 & 30 April: Draft legal agreements arrive from BMW for Phoenix and Deloittes to consider
1 May, Bank Holiday: Deloittes finally travel to London where BMW allows the team to see the books for the first time.
2 May: BMW gives Phoenix and Deloittes ten days to come up with a feasible business plan.
2 May: Phoenix, with Deloittes involvement, agrees £200m financing from First Union Bank to help close the deal with BMW.
9 May, 8.30am: Seven days later and following 48 hours in which none of the Deloitte team sleeps, Phoenix and BMW sign contracts.