What is the Science of a Good Business Deal?

The Science of a Good Deal

By Sue Lewis: Partner at Eversheds and Chairman of Birmingham Forward

With early signs that the deals market may be improving, I thought that now might be a good opportunity to look at the dynamics of exactly what goes into making a deal happen. As is often the case, especially with more material mergers and acquisitions (M&A), some of the details often go unnoticed, despite their relative importance.

Here are some thoughts as to what can lie behind an important deal for two types of company – family owned/SME and private equity owned.

For family owned companies or SMEs, a sale could be a way to fund retirement or simply a logical next step in the development of the business.  M&A transactions are likely to be a very new experience for most family owned companies, meaning it’s absolutely crucial to take proper advice in order to maximise value and ensure the process is run smoothly and efficiently, whilst minimising risk.  

Finding the right advisers will help you navigate what can be a complex and highly tactical process, with a corporate finance adviser often being the key appointment.  Once the sale process is under way, demands on management time are likely to be heavy and a key challenge will be ensuring that everyday business isn’t neglected whilst dealing with the transaction.

During the decade to 2008, but particularly from 2006 onwards, the number of private equity buyouts soared.  These deals were often done with the intention that the private equity house would be able to exit those investments by way of sale at a profit in 3-4 years. For obvious reasons this has proved difficult over the past two years.  With market improvement we are therefore likely to see a number of transactions involving private equity owned companies.  

These may take the form of a sale to a trade buyer in the same sector, a flotation on the stock market or a "secondary buyout" by another private equity house.  If it is a secondary buyout, getting the debt structure right may well be a significant challenge.  Banks are no longer willing to back the type of leveraged deals common before the recession and as a result the number of private equity buyouts has collapsed.  There are signs that things are starting to change, but raising the required debt finance is likely to continue to represent a real challenge over the next year.

It’s clear that the Midlands M&A market still faces some challenges ie there is still some uncertainty as to how the economy will respond after the election.  For SMEs however, one thing remains clear – it’s fundamental to a successful outcome that you get the best advice you can as early as possible in the process.

• Login to post comments