Going to the supermarket is turning out to be a 21st century activity, if the latest industry trends are to be believed, with the world’s largest companies moving to pick up companies that offer online home-delivery services for groceries. In an age when anything, from cars to brussels sprouts, can be purchased via an online marketplace, why should the weekend shopping be any different?
Archive for the ‘Mergers & Acquisitions’ Category
There has been a significant shift towards renewable energy investment in recent years and the appetite for buying and selling businesses within this space is growing all the time.
Last orders are a long way off for the UK’s pub industry but, though appetite for deals in the sector has soared in recent years, some are warning that there may be more of a queue at the bar.
A number of high-profile deals have dominated headlines in recent months: last month, for example, Dutch giant Heineken completed its part-purchase of Punch Taverns, making it the third biggest pub-owning company in the UK.
Leaked data on mergers and acquisitions (M&A) boosts the average value of deals by $21 million, new research from Intralinks suggests.
The 2017 Intralinks Annual M&A Leaks Report revealed that in 2016, almost one in 10 (8.6 per cent) of global M&A deals were leaked ahead of any public announcement of the transaction. While similar to 2015 figures, the statistic represents a significant jump from a six-year low of six per cent in 2014. These results come despite the efforts of financial regulators to stamp out deal leaks and boost fines and penalties for market abuse and insider trading.
India topped the list of the top ten hotspots worldwide for deal leaks, with 16.7 per cent of the country’s deals being publicly leaked, followed by South Korea (16.1 per cent) and Japan (12 per cent). In comparison, the countries with the lowest rate of leaks include Canada (4.3 per cent), France (4.3 per cent) and the UK (7 per cent).
The Retail, Real Estate and Consumer reported the biggest problems with leaks, with the latter seeing its rate of deal leaks jump from 7.8 per cent in 2015 to 15.5 per cent in 2016. Meanwhile, Healthcare, Energy & Power and Industrials witnessed the fewest breaches.
So why do M&A deals leak? The answer lies in the higher target takeover premiums these leaks generate, resulting in higher valuations. As the Intralinks report highlights, this pattern has held true from 2009 to 2016 – during which time the median takeover premium for leaked deals has been 47 per cent for leaked deals vs. 27 per cent for non-leaked deals.
However, it’s not all bad news for businesses. Philip Whitchelo, Vice President of Strategy and Product Marketing at Intralinks, suggests the appeal of deal leaks may be waning.
“The rate of deal leaks in markets where leaking was rampant a decade ago, such as the UK, has reduced considerably: a reflection of new regulations against market abuse and much stricter regulatory enforcement.
“Countries such as India and Hong Kong, which have comparatively high levels of deal leaks, are also making more efforts to tackle market abuse and insider trading. Overall, against the perceived benefits, those leaking deals must also weigh the risks, and those benefits appear to have reduced in 2016,” he commented.
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The Great British public has spoken and voted for the country to exit the EU. Cameron has resigned and the government is trying to put together an economic and legal plan for the road ahead.
Business owners will need to stay calm and concentrate on trading as usual. The uncertainty of markets and currencies may create difficult trading conditions for larger businesses who have suffered share price falls.
Economically it will be important for Britain to maintain inward investment and much of this, at least in the short to medium term, depends on the deal that the UK now negotiates with the EU. Hopefully the country will successfully negotiate continued access to the 500 million people across the EU and European Free Trade Association. How it is going to do that without allowing for the movement of Europeans across its border is going to be interesting. Despite no other country having managed to this so far, Britain’s trade involvement with the continent is substantial and mutually beneficial, so we should see a deal being struck with favourable terms after some serious negotiation.
In the event of Britain not succeeding in its continued membership of EFTA, all is not lost. Currently around two thirds of UK exports are destined for non-EU countries and it is entirely possible that over time the new freedom to negotiate free trade treaties will increase substantially to mitigate any EU shortfall. Of course there are already treaties in place between some of these countries and the EU which will need to be renegotiated by Britain.
Legally, the retreat from Europe shouldn't’t affect private M&A deals where the required documentation is reliant on English law and the exclusive jurisdiction of the English courts. However current and recent M&A contracts ought to be re-examined from a legal perspective in the light of Brexit. That’s because Britain’s withdrawal could be deemed a ‘material adverse change’ and therefore potentially enable a contractual clause to be invoked.
M&A deal flow slowed slightly in the lead-up to the referendum, though only from round mid-May. It ought to be noted that foreign (non-EU) investment into the UK has increased substantially this year over last year. This will pick up again now the referendum is over. The lower pound will certainly make UK company assets more attractive.
British business is generally agile and used to a fast-moving, competitive trading environment and an uncertain political and economic landscape. The legal and regulatory environment is robust and corporate tax rates are low. British creativity and ingenuity continues unabated.
Britain will make its choice on the 23rd of June. The vote has already become personal, the heated debate is inescapable and the media scaremongering has seen each side giving as good as they’re getting with hyperbole and accusations.
But when it comes to the future of the British economy, is it possible to put emotion aside and make a clear decision as to what’s best for business? And for those in the M&A industry, is it really possible to make a clear case in favour of either side at this point?
For business buyers, the land of distressed opportunities can be a happy hunting ground, filled with great-value deals and easy-to-acquire assets. But distressed businesses can also attract rival bidders, which is why keeping a close eye on companies served with winding-up petitions can be such a worthwhile exercise.
So what exactly is a winding-up petition?
In short, a winding-up petition, or WUP, is a serious course of action taken against a business that fails to make financial payments to creditors. This can mean that the company has broken any trust the creditor had; its cheques have bounced; or the directors have not kept their word to make payments.
A powerful weapon in a creditor's armoury, a winding-up petition is served when a business, for whatever reason, simply cannot make the payments it needs to. The fact that it can cost anything up to £2,000 just to file a WUP is an indication of the severity of the action – it is usually a last resort when an individual or business needs to get the money they are owed.
Essentially, a WUP is an early indication – before a liquidation or administration take place – that a business has fallen into financial disrepute. Moreover, a winding-up petition is the start of a process which, if ignored, leads to the Compulsory Liquidation of a limited company.
So what is their relevance to business buyers?
As stated at the top, business buyers will often look to distressed businesses as ideal acquisition opportunities because companies that have fallen on hard times usually represent better value to the buyer. But this improved value can often bring with it greater competition. Getting a head start on rival buyers, therefore, is vital if one is to secure an acquisition before others beat them to the punch or enter the fray and drive prices up in a bidding war.
Importantly, once a winding-up petition has been served, the recipient business cannot sell the company or the assets, as this could be reversed by the court. So an immediate acquisition will likely not be possible. However, if one was to use the rather unflattering metaphor of a shark hunting injured prey to describe business buyers seeking out distressed opportunities, then a WUP is the first drop of blood in the water.
Winding-up petitions are not as well reported as administrations, nor are they a guaranteed sign that a business is about to go under, but they are a clear indication that there is trouble brewing. Thus, by monitoring WUPs a buyer can put a target company on their radar long before they will come to the attention of other buyers.
This head start can be crucial – it will give the buyer valuable time to conduct due diligence into the acquisition target, weigh up any assets that would be beneficial to their existing business(es) or establish if they could viably attempt a turnaround of the entire company. Importantly, they can do this before the target enters liquidation or administration, at which point many other buyers will be alerted to the opportunities.
The window of time in question, between a winding-up petition being served and the fate of the company being decided, often in the form of a liquidation or administration, is between six and eight weeks. This gives the buyer time to not only conduct the aforementioned due diligence, but also to speak directly to the sometimes desperate owner of the troubled company and lodge their interest, therefore improving their chances of cementing a deal when the appropriate time arrives.
So, in the competitive merger and acquisition market, where any slight advantage can yield huge benefits, understanding and closely monitoring winding-up petitions can provide the all-important edge a business buyer needs to achieve the sale they're after.
The Business Sale Report tracks all the latest businesses to have winding up petitions lodged against them. Click here to view the latest winding up petitions lodged in the UK.
It didn’t take long for the wheels to kick into motion following City Link’s slide into administration two weeks ago as today (6 January) the news broke that a buyer has been found for the company.
The parcel delivery business finally ran out of road on Christmas Eve, with union bosses condemning the failure and subsequent 2,000-plus redundancies as an “absolute disgrace”. But no sooner had the dust cleared from its unceremonious collapse than a buyer stepped forward in the form of rival logistics firm DX Group.
DX announced on Tuesday morning that it had bought more than £1 million worth of City Link’s assets including parcel-scanning equipment, cages used to transport parcels within warehouses and “certain intellectual property”.
The value of the assets is well known to the head of DX, Petar Cvetkovic, as he was once City Link’s managing director before leaving to set up the rival business several years ago.
It had been five years since City Link had posted a profit so, while the timing of its demise was unfortunate, leaving many without presents under the Christmas tree, it was not altogether surprising.
Nevertheless, the nature of this deal and the assets that were bought demonstrates that, even when a business has failed, it will still possess things that are of clear value to rival companies. Moreover, these assets are often available at a knockdown price.
That is why businesses in administration are in such demand among business buyers – because they can be dissected; the prime cuts can be taken away from the deteriorating carcass. In this case the factory equipment can have a clear and immediate benefit for DX, enabling the company to expand its operations or save money on machinery it would have had to buy later on.
The undisclosed intellectual property also points to another attractive selling point of distressed businesses. Whether it is bespoke software for a specific sector or a patent on a particular product, IP can add value to a business looking to grow or become more efficient.
Although City Link’s closure was one of the more widely reported administrations of the past 12 months – again because of its ill timing and painful consequences on people’s festive celebrations – the story illustrates the value of monitoring businesses in distress. Many similar collapses will not receive so many column inches, meaning business buyers must look a little harder to remain abreast of such developments.
Waiting for stories to report on the fate of companies often leaves it too late – a better, more proactive approach is to seek out listings of businesses that have failed or are failing. This will not only give potential business buyers a head start over many competitors, ensuring they spot businesses that have fallen into administration first, but it will also allow them to monitor signs of distress, including things like winding-up petitions, which act as the proverbial drops of blood for the sharks in the M&A pool.
If you are interested in identifying potential turnaround opportunities before the competition, then take a look at our latest businesses in administration list which we update daily for our subscribers.
More information on City Link in administration
There are many reasons why someone would want to buy a business.
For those who already own businesses it is the best way to grow, by expanding into new markets or out-muscle competitors. However, there are many people for whom buying a business is the beginning of a new journey to create their own company and be their own boss.
A nationwide study by Invest in Cornwall in 2013 found that 1.8 million Brits are planning to start their own company in the next five years – many of these will start by purchasing a business that already exists.
For these people buying a business is the metaphorical scratching on an entrepreneurial itch they have been carrying around for some time. And whether an individual has suddenly come into some money or has been saving away so they can start their own venture, buying a business is the first step on a new and exciting ladder.
But what makes buying a business and owning your own company such an attractive, worthwhile prospect?
First of all, often the most difficult aspect of starting a business is to create the idea – deciding what it is you are going to do that will make you money. Then come all the additional, practical challenges: funding, premises, staff, supply chain, business models, and everything else in between.
To buy a business gives an individual a head start and bypasses a lot of these difficult stages. A business buyer inherits structure, systems assets, employees, cashflow, and clients; even if these are things the new owner needs or wishes to change, they are hugely valuable to help get things off the ground.
Moreover, to create a start-up from scratch carries plenty of challenges, unknown quantities and risks. Indeed, Startups.co.uk notes one such problem: “Many start-ups fail from the outset because it’s so difficult to get people to put money towards a risky venture. But if you’re buying a business, depending on its cash flow and assets, you should be able to borrow as much as 70 per cent of the acquisition cost.”
Of course, this does not mean that when someone buys a business they are going to hit the ground running – the majority of small companies that will be acquired by a first time business buyer will be the kind that are struggling or in distress. Changes will need to be made, but importantly the skeleton will already be in place – given the right vision and enough resources, a new owner can then set about turning things around.
It might take months to complete an acquisition and it will also require large amounts of capital upfront, although, as pointed out, it is easier to get your hands on this funding when buying a company as opposed to creating a start-up. Nevertheless, buying a business can be a great springboard towards realising an entrepreneurial dream without having to complete the tricky opening stages.
For those who are dipping their toe into the merger and acquisition (M&A) market for the first time, step one is to set about finding a business to buy. A word of advice: looking at businesses listed for sale or falling into distress, rather than pursuing off market acquisitions, will almost always offer the best value for money.
So for anyone wanting to start their own business and become their own boss, the merits to buying a pre-existing company and moulding it to your heart’s desire are clear. Avoid the more pronounced risks and challenges that come with starting a business from scratch and make the M&A market the first stop on your route to entrepreneurial success.