How to Maximise Value in M&A

Comm update Faces_9 Oct

With the M&A market tantalisingly poised to reopen, it’s encouraging to find that management teams have the confidence to execute their plans for growth by completing ambitious deals. That said, only those companies that remain disciplined about selecting an acquisition target, and have a clear idea about how to integrate a new business, will generate real value and meaningful returns for investors.

David Turner, CEO of private equity-backed call centre firm Webhelp TSC, who has been given an £84 million warchest to fund acquisitions, says: “You’re looking for those businesses that are additive in terms of capability, so that it is different to the existing combination and it aligns to your strategic goals.”

In these markets, the case for a deal has to be crystal clear. Paul Walsh, who led a number of major acquisitions when he was CEO of global drinks business Diageo, comments: “You have to understand your objectives and what you’re trying to do. In [Diageo’s] case, are you trying to buy distribution? Are you trying to buy the local brand? The local management? You need to be very clear about that and it could be the case you need all three – just because something is out there and available, it doesn’t make it the right deal for you.”

A forensic approach is required if you’re going to maximise value from a transaction. Mark Garrett, Chief Operating Officer at technology and engineering consultancy Ricardo Plc, says: “We are constantly on the lookout for suitable targets and when one in particular starts to look right, we energise a small specialist team to dig deeper and review on a step-by-step basis so we can close the opportunity down at any time and try to eliminate any emotion or personal agendas from creeping in.”

It’s a case of separating responsibilities. Paul Budge, MD for the UK & Ireland at consumables distributor and outsourcing business Bunzl, comments: “The operational leadership is charged with finding the prospects, putting the case together and presenting it to the board… [whereas] the M&A team will actually run the transaction, in terms of tabling the offer, commissioning the due diligence and handling the process of negotiation.”

Deals on the horizon

Although there has been caution over M&A transactions, it does appear like things are finally going to pick-up. Sean Longsdale, Managing Director for Santander’s Structured Finance Group, says: “We’re seeing limited M&A activity from mainstream corporates, public companies or larger independent businesses looking to acquire…

“But we are seeing a very active private equity market, which has found renewed confidence, good volumes and leverages beginning to creep up a bit… In businesses that are stable, predictable and with strong market positions we’ve seen debt leverage of 4 to 4.5 times.”

Charlie Johnstone, Origination Partner at PE firm ECI Partners, comments: “There are more growth companies than we’ve ever calculated in the UK at the moment and a lot are interested in expansion capital… The big drivers of growth for the companies in our portfolio are internationalisation and M&A; we’ve done five bolt-ons in the last 12 months.”

Of course, deals are getting done on the public markets too. Adrian Gunn, CEO of recruitment agency Matchtech, which last month paid £4 million in cash for technology concern Provanis, says: “We’ve been giving [the City] a consistent message for the last few years… so I knew it wouldn’t come as any major surprise to the investment community as to why we went for it.”

Good fit

As ever, the integration of a new business will determine whether a deal is to be successful. David says: “[It] must be top down led and involve senior management from the acquired company. The way I’ve done this in the past is that you have a steering group led by the two leaders of the businesses, then you have a project team in place which has joint accountability from both leaders… If you get the integration right, you get very little problems coming back to the steering group.”

Julia Robertson, Group CEO of outsourced HR services provider Impellam, comments: “It’s vital to have absolute clarity of expectations, spending sufficient time listening carefully to the point of view of incoming management and communicating clearly, over and over again.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s