Trade Secrets of Successfully Acquiring Unquoted Companies

A Thorogood Special Briefing TRADE SECRETS OF BUSINESS ACQUISITIONS Barrie Pearson IFC A Thorogood Special Briefing...

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A Thorogood Special Briefing

TRADE SECRETS OF BUSINESS ACQUISITIONS Barrie Pearson

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TRADE SECRETS OF BUSINESS ACQUISITIONS Barrie Pearson

Thorogood Publishing Ltd 10-12 Rivington Street

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The author Barrie Pearson is chief executive of Realization. The company provides world class mentoring and coaching for chief executives and entrepreneurs about to embark on the acquisition trail, and to help them groom a business as the first step in making a disposal through until the consideration is paid to them. After university, Barrie worked for Dexion Comino International, The Plessey Company and The De La Rue Company, acquiring and managing companies in the UK, mainland Europe and the USA. In 1976, he founded Livingstone Guarantee plc, the first corporate finance boutique in the UK, advising on acquisitions, disposals, management buy-outs and buy-ins, fund-raising and stockmarket listings. When he sold it, the company had become the largest and most successful independent corporate finance house in the UK. He has written seventeen books, in his spare time, including Trade Secrets of Business Disposals which was published recently by Thorogood. He has presented seminars on acquiring and selling companies in the UK, Europe, New Zealand and the Far East. He is Chairman of Precision Corporate Finance which is headed up by Neil Ackroyd, a former colleague in Livingstone Guarantee. Barrie can be contacted by email at [email protected] or by telephone on 01296 613828.

A THOROGOOD SPECIAL BRIEFING

iii

TRADE SECRETS OF BUSINESS ACQUISITIONS

Preface This Special Briefing distils nearly 40 years of my deal-making, both as a principal and a corporate finance adviser, to reveal the trade secrets which are rarely written about and to spell out the hard truths about the avoidable traps executives and professional advisers often fall into. Group executives and business owners thinking about making an acquisition will gain invaluable insights into achieving the best possible deal, and ensuring effective post acquisition management from the outset. Equally, people contemplating a sale of a business will benefit from understanding the process from the acquirers standpoint, as well as their own. Professional advisers are acutely aware of the effort needed to make a pitch to win an assignment, especially in a beauty parade, and their success rate may well be less than 25%. By a better understanding of what clients want from their advisers, and important details which lose assignments, the outcome will be a higher rate of winning assignments and more deals completed for their clients. This Special Briefing is laced with proven tactical advice to ensure that deals are completed, because losing a deal by adopting the wrong tactics is unforgivable. Although I am a qualified accountant, it is people handling skills rather than financial analysis which win or lose deals. Yet again, Claire Sargent has made time to word process this manuscript whilst doing a demanding full-time job. Barrie Pearson REALIZATION Campbell House Weston Turville Bucks HP22 5RQ

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Contents

1

REALITY, STRATEGY, OPPORTUNISM AND THEORY

1

Most acquisitions underperform ...............................................................2 Safer and risky acquisitions........................................................................2 Kissing frogs is essential.............................................................................4 Commercial due diligence is vital ..............................................................5 Opportunism is a must................................................................................5 Mergers should never happen – well, hardly ever...................................7 Stock market listed acquisition targets .....................................................8

2

WHAT BUYERS SHOULD SEEK… AND AVOID

9

Management continuity is a key issue.....................................................10 Consistent sales and profit growth history are valid comfort ..............12 Sales and profit forecasts must be robust...............................................13 Demonstrable cash generation is a major plus ......................................13 Realizable surplus assets are a plus factor..............................................14 Tax and VAT need to be clean ..................................................................14 Undue customer or supplier dependence is a potential risk ...............14 Major customer contracts due for renewal are a cause for concern ....15 Relocation may be a plus or a minus.......................................................15

3

DEVELOP YOUR STRATEGY INTO AN ACQUISITION PROFILE

17

Strategy needs focus .................................................................................18 Evaluate alternatives to acquisition .........................................................19 Organic growth..........................................................................................19 Trading agreements...................................................................................20 Strategic alliances ......................................................................................21


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Minority equity stakes...............................................................................22 A joint venture or consortium..................................................................23 A majority equity stake .............................................................................24 Performance-related deals........................................................................24 Assess the likely number of acquisition targets .....................................25 Write an acquisition profile to focus your acquisition search ..............26 Maximum cash available for acquisition ................................................27

4

FIND RELEVANT TARGETS AND WOO VENDORS

31

A UK in-house search – initial stages ......................................................32 Be wary of using external advisers..........................................................33 An in-house UK search – main search ....................................................35 Don’t just contact vendors, woo them from the outset .........................36 The initial meeting with the vendors .......................................................37 The key meeting to obtain streetwise information from the vendors ....39 An overseas search....................................................................................40

5

USE COMMERCIAL COMMON SENSE TO VALUE A BUSINESS AND MAKE AN OFFER

43

Adjusted profit history and forecasts are vital .......................................44 Quantify major cost rationalization opportunities.................................47 Calculate the adjusted net assets .............................................................48 Use your own adjusted profits for valuation .........................................49 Structure the offer to reflect vulnerabilities ...........................................51 Discuss your offer face-to-face with the vendors ..................................52

6

NEGOTIATE THE DEAL AND SIGN HEADS OF AGREEMENT

53

Negotiate the Heads of Agreement .........................................................54 Earn-out deals need defining ..................................................................58 Warranties and indemnities need to be negotiated ..............................60 Fix the maximum liability of the vendors................................................60

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CONTENTS

Joint and several liability for vendors .....................................................60 Agree the basis to trigger a warranty claim against the vendors........61

7

STEER THE DEAL SAFELY TO LEGAL COMPLETION

63

Effective commercial due diligence is vital .............................................64 Environmental due diligence needs to be done on every deal .............65 Financial due diligence must include profit forecasts and the order book ....................................................................................66 Pension due diligence................................................................................67 Legal due diligence should include contractual issues and regulatory compliance .......................................................................67 Assess the disclosure statement by the vendor and negotiate changes ..............................................................................68 Prepare to announce the deal internally and externally........................68

8

POST ACQUISITION MANAGEMENT: TURN AROUND LOSS MAKING COMPANIES EFFECTIVELY AND QUICKLY

71

Make an initial impact ...............................................................................72 Set up reporting relationships and authority limits...............................75 Establish clear rules for handling the media ..........................................75 Keep head office interference to a minimum..........................................75 Get an overview of the business ..............................................................76 Start with the sales team...........................................................................76 Scrutinize overhead and administration costs .......................................78 Tackle production and procurement costs… and opportunities ..........79 Set relevant short-term forecasts and objectives...................................80 Financial planning and control need clear priorities ............................81 Create a budget for the new financial year.............................................81 Examine research and development .......................................................82 Address the medium-term future for the business................................83 Make redundancies urgently and humanely ..........................................85


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9

UTILIZE EXPERT STREETWISE TACTICS

87

Discuss the structure and form of consideration before making a written offer ..................................................................88 Realize that too low an initial offer may lose the deal ...........................89 Reveal any onerous conditions early to reduce their impact................90 Spell out and sell your management approach ......................................90 Recognize that your conduct prior to completion is crucial.................91 When negotiating the final deal it is unlikely that the vendors can justify a higher offer .....................................................91 Criticizing the business to the owners must be avoided.......................91 Quid pros quos are an effective way for win-win negotiation .............92 When no agreement is reached, keep the door open............................92

10

CHOOSE AND APPOINT ADVISERS WITH CARE

93

Identify the help and advice you need and want ...................................94 Recognize the advice and help which is available .................................96 Create an effective beauty parade to select advisers.............................97 Always agree fees and negotiate the engagement letter before appointment .........................................................................98 Telephone references on individual advisers really are valuable .........99 Ensure advisers keep you informed of progress ...................................99

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Chapter 1 Reality, Strategy, Opportunism and Theory Most acquisitions underperform Safer and risky acquisitions Kissing frogs is essential Commercial due diligence is vital Opportunism is a must Mergers should never happen – well, hardly ever Stock market listed acquisition targets


Chapter 1 Reality, Strategy, Opportunism and Theory Your acquisition strategy must be firmly rooted in reality, opportunism is needed to complete deals, but theory is a waste of time.

Most acquisitions underperform The stark reality is that well over 50% of acquisitions underperform compared with pre-deal expectations, as judged by the acquirer with the benefit of hindsight. This is based on research carried out over the past 25 years from a variety of studies around the world. Press articles underline this evidence by reporting profit warnings which reflect underperformance from many acquisitions

Safer and risky acquisitions Tangible evidence, rather than theory, offers an insight into safer acquisitions and risky bets, but there is rarely ever guaranteed success.

Market leadership or increased market share Over many years there is clear evidence that the market leader is likely to be the most profitable in the sector. So acquisitions which enable a company to achieve market leadership in the existing segments and territories already served should be regarded as safer, provided there are no anti-monopoly problems and the pursuit of diminishing returns will be avoided. Similarly, increased market share is a valid goal, particularly for a company to become one of the three largest players in the sector. This means that prospective customers are likely to be motivated to find out what you offer because of your visibility in the sector. Similarly, if the market leader is allowed to dominate the market, the number two and three players have legitimate concerns. So there

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1 R E A L I T Y, S T R AT E G Y, O P P O R T U N I S M A N D T H E O RY

is sense in, say, the number two and three coming together to create a more serious competitor.

Acquire a niche business Niche businesses, which are relevant to your strategy and are market leaders in their segment, often prove to be robust acquisitions. The reasons are that their market share will continue to provide the momentum needed post-acquisition, and the smallness of a niche market means that other companies are unlikely to enter the segment. An example is an international support services company that entered the hospital trust car park management segment by acquiring the market leader in the UK, and this helped them to expand geographically as well.

Broaden the product or service range The rationale for this approach is to achieve more of a one-stop offering to customers and clients, and benefit from cross-selling opportunities for other services. An example could be that a marketing services group acquires a public opinion survey company. Many companies have found, however, that it is much more difficult than expected to realize cross-selling benefits.

To enter an important distribution channel In recent years, supermarkets have carved a significant market share in selling wines and flowers. Likewise, some supermarkets have built up sizeable chains of small outlets serving local communities and inner city neighbourhoods. The route has been several acquisitions of local store chains, because it would take far too long to obtain planning permission and build new outlets or to acquire leasehold premises piecemeal.

To secure a key supplier Some companies are highly dependent on one supplier to provide a continuing source of supply. Whilst it can be argued that a second source should have been developed years ago, the reality now is that if a competitor acquired this vital source of supply it could cause serious problems. On the other hand, when a key supplier is acquired, other customers will seek alternative sources. Consequently, there needs to be a strong case to protect a key supply by acquisition.


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If an important supplier approaches your company to acquire a minor equity stake, perhaps coupled with a loan, my advice is not to invest in these circumstances and instead to find or develop another source of supply urgently.

To provide cost rationalization opportunities Cost rationalization as a benefit of acquisition seems attractive. For many acquirers, however, unlocking synergy has proved to be as difficult as spotting the Loch Ness monster on a dark and foggy night. Successful delivery of postacquisition synergy needs to be based on identified savings pre-deal! It is not enough to guesstimate that head office costs will yield a 20% reduction across the board. Specific individuals need to be identified and other savings rigorously evaluated.

Overseas acquisitions The highest risk category of acquisitions is probably overseas acquisitions. Anyone considering an acquisition of a company in a new market sector in a country where there is no existing subsidiary, should first of all learn to walk on water at the local swimming pool; in other words – forget it! The lowest risk category is to acquire a bolt-on acquisition for an existing subsidiary overseas. Intermediate risk categories to extend geographical cover are to acquire a business in an adjacent market segment in a country with an existing subsidiary, but to acquire a similar business overseas in a country without an existing operation is a higher risk.

Kissing frogs is essential Some years ago a listed company told me that 12 unquoted companies had been acquired within two years and in every case the vendors made the initial approach. No other acquisitions had been identified. This stemmed from a new chief executive determined to consolidate a fragmented sector. Within a further three years the group was put into administration. The financial director told me that the board was flattered by these unsolicited approaches. The reality was the private vendors recognized a lucrative band wagon for them and jumped aboard. The company overpaid significantly, did inadequate due diligence and made a mess of integrating the businesses acquired.

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In stark contrast, the most successful acquirers I have been privileged to advise probably considered at least ten targets, in a differing amount of detail, for every acquisition completed. In other words, they know that kissing frogs is a must!

Commercial due diligence is vital The single most frequent cause of an underperforming acquisition is that the acquirer took the commercial well-being of a target company on trust. The vendors sales pitch was enough to hook a deal. Ten years ago many acquirers ignored commercial due diligence, and some still do today. Private equity houses, however, are committed to commercial due diligence as a matter of routine. Accountancy firms have an established track record in providing financial and tax due diligence, and many now offer commercial due diligence as well to maximize their fee income from a deal. Too often it is done by people who are resprayed auditors, as I call them, who lack commercial insight. Fortunately, specialist firms now provide commercial due diligence. Some of the issues where commercial due diligence is appropriate includes an investigation of: •

customer satisfaction, compared against competitors

•

the awareness and reaction of non-customers to the target company

•

the distribution channels used, compared with rapidly growing, mature or declining channels

•

the standing of the company as a potential employer

•

the anticipated impact of technology on the sector and the target company

The key to commercial due diligence is to identify and focus on those issues which are most important for the future success of the particular target company.

Opportunism is a must It may seem to be a contradiction that my message is all about a measured and rigorous approach to every acquisition, and yet I regard opportunism to be a must. There is no contradiction whatsoever. Relevant acquisition targets decide when they wish to sell and you may be made aware of a sale by the corporate


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finance adviser acting for the vendors. Provided that acquisition criteria have been formulated, preferably in the form of a written Acquisition Profile (described in Chapter 3) it will be easy to judge the relevance and importance, or not, of the target company for you. The timing of the vendors may conflict with your budgetary season, or whatever, so be it! Nonetheless, you need to pursue the opportunity. I know of one chief executive who reacts differently. He is always on the look out for a bargain deal and commits resources to pursue every deal which crosses his desk. As a result, there is a massive waste of management time because there is no focus and he rarely ever completes a deal. Receivership opportunities are another potential time waster. Within two days of the announcement of receivership, the receiver may announce that about sixty expressions of interest have been made. Only a handful of prospective acquirers will be invited to meet the receiver, and they will be expected to respond as a matter of urgency. So, first of all, decide that the opportunity really is relevant before making any contact. If the business is acquired from receivership, management must be injected from the outset. It is absolutely naïve to think that installing a good finance director will restore success. A stand-alone business requires a full-time chief executive and a finance director, and there is no substitute for a chief executive with successful turn-around experience. A controlled auction of a business may prove to be a major time wasting exercise. The first step is to understand the typical controlled auction process: •

The sale of a business, usually a division or subsidiary of a group rather than a private company, will be announced in the press by a news article and not by an advert.

•

In addition, the corporate finance advisers may contact selected bidders at home and overseas to make sure that people are aware of the opportunity.

•

Prospective purchasers will be required to make a written offer, typically within four to six weeks, and without any contact with the management team. The offer needs to be made purely on the lengthy information memorandum prepared by an accountancy firm on behalf of the vendors.

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•

Up to 25 offers may be received, and these will be reduced to five or six – and may include an MBO from the management team or private equity players acting as principals.

•

The short-listed bidders will be given access to an on-line ‘data room’, and invited to carry out the bulk of their due diligence and to meet the management team. Often the vendor will release the draft Share Purchase and Sale Agreement to be used.

•

Typically only about two or three weeks will be allowed to submit a final offer, which may be higher or lower than the initial offer.

•

Usually two bidders are selected, with one of them ‘kept warm’ in reserve, and the aim is to rapidly complete any outstanding due diligence and to have final negotiations prior to legally completing the purchase.

The fundamental difference compared with the usual sale process is the timing of due diligence. In a controlled auction, a substantial amount of due diligence needs to be done prior to the second round of offers. This requires not only in-house management resources, but costly work which needs doing by third parties and you may not be selected to go forward as one of the two preferred bidders. In contrast to the usual sales process, Heads of Agreement are signed and a period of exclusivity given to the prospective purchaser to carry out due diligence and complete the deal. Consequently, the risk of abortive management time and due diligence fees is much greater in a controlled auction. So there is a clear cut message – do not enter a controlled auction unless the target really is relevant for you and you believe that you are well placed to be successful.

Mergers should never happen – well, hardly ever Probably only one in ten merger attempts result in a completed deal. Why? The two companies simply fail to agree on the split of the equity. Merger attempts often start out in an amicable way, because the people involved have ‘known’ each other for years, and end in recriminations and annoyance that so much management time and advisory fees have been wasted.


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Two issues need to be agreed at the outset: •

the split of equity, which may require one party to inject cash or extract it, to achieve the desired split; and

•

the top management structure agreed by job definition and choice of individuals. It is nonsense to even think of joint managing directors, joint marketing directors or whatever. There will be too many directors and some will need to leave.

Only when the equity split and management team have been agreed, should advisory fees be incurred. An awful situation is where each party appoints corporate finance advisers to value both businesses or to recommend the equity split and any cash adjustment needed. Worse still, I know of cases where each party rejected the proposal and agreed to have a third advisory firm, and yet more fees, to decide what is fair. Even this may well result in deadlock.

Stock market listed acquisition targets Failed attempts to acquire a listed company are expensive and the ensuing press coverage may be adverse. If the bid is to be hostile, higher bids may be triggered. When a bid approach is made on an expectation of an agreed offer, the likelihood of success is greater but other bidders may still come forward. My advice is not to attempt a hostile bid unless there is a compelling commercial rationale and a rigorously evaluated likelihood of success. Whether friendly or hostile, however, an investment bank should be appointed to advise well before any approach is made. Stock exchange regulations require a ‘standard’ timetable to be followed and careful handling of the transaction to ensure that the correct procedures are followed, so these situations are outside of the scope of this Special Briefing.

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Chapter 2 What buyers should seek… and avoid Management continuity is a key issue Consistent sales and profit growth history are valid comfort Sales and profit forecasts must be robust Demonstrable cash generation is a major plus Realizable surplus assets are a plus factor Tax and VAT need to be clean Undue customer or supplier dependence is a potential risk Major customer contracts due for renewal are a cause for concern Relocation may be a plus or a minus


Chapter 2 What buyers should seek… and avoid It is so easy for commercial commonsense to go out of the window amid the excitement of a winning a deal. Any idea of winning or losing is totally out of place. Crazy though it is, I have known directors to calculate the amount of synergy required to gain investment committee approval. I repeat that synergy must be based on identified and deliverable action, with the realization that many acquirers have discovered that unlocking synergy will result in significant additional costs initially and take longer than expected. An example of so-called tangible and deliverable synergy is where both the acquirer and the vendor have a national sales force serving the same market. Imagine that the combined sales force add up to 130 people, and it is agreed that 100 will be ample for the merged operation. The evaluation required involves: The 30 people to leave are identified, together with the redundancy payments necessary. This is likely to be a significant one-off cost. As a result of overlap or underlap of individual territories some people will need to be persuaded to relocate, with the ensuing one-off cost of relocation and the likely cost of an improved package as a ‘sweetener’. Additionally, basic salaries, incentives for sales achieved, allowable expenses and company cars will need to be harmonized. Invariably, this requires harmonizing upwards rather than downwards.

Management continuity is a key issue On numerous occasions the acquiring team has told me that the owner-directors of the target company were not ‘professional’ managers. Exactly right! But it misses the point completely. They were entrepreneurs, with a highly developed commercial instinct based on many years of hands-on experience and knowledge of the market sector.

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2 W H AT B U Y E R S S H O U L D S E E K … A N D AV O I D

Their concerns are likely to be motivating staff to share their own passion for the business, winning new business, staying close to existing customers and experimenting with new product or service ideas. Formal five year business plans, investment appraisals for capital expenditure and suchlike may be non-existent or rudimentary at best. So what? These can be introduced later, hopefully without losing too much of the entrepreneurial flair. It is vital to understand what the owner-directors contribute to the business and how they spend their time. Wiley owner-directors wishing to leave the business as soon as possible after legal completion, will understate their own value. And don’t be fooled if an internal candidate was promoted to ‘managing director’, shortly before a sale was initiated, probably on the suggestion of the advisers grooming the business not just for sale, but for a quick personal exit as well. The importance of owner-directors may not be obvious. One target company received over 40% of total sales from one blue chip customer. The owner-director said that the account ran like clockwork because of the care and attention of many staff. He ‘forgot’ to mention that the procurement director sailed regularly on his luxury yacht. In another case, senior staff retention was outstanding in contrast to the sector as a whole where staff turnover was high. The reason? The owner-director was truly inspirational and had built up massive staff loyalty. In another case, an insurance broking business employed about 100 staff including a dedicated sales force. The reality? The three owner-directors won more than 80% of new business, and the sales force concentrated on ‘maintaining and servicing’ customers. The most critical period for a newly acquired business is the first few weeks and months. Even mildly dissatisfied customers may decide to have a second supplier or to invite other suppliers to pitch for the business. Staff are likely to be nervous and suspicious, perhaps wrongly assuming the risk of redundancy. So, unsolicited job offers and attractive job adverts may be tempting. Eradicating a company name may cause greater upheaval than ever expected. In Livingstone Guarantee, the name meant a lot to staff at all levels, and I was delighted when the acquirer deciding not only to maintain the name, but brought their much larger corporate finance division under our name and management control as well. In certain circumstances, the key issue may be to lose the top management just as soon as possible. For example, when an international contract caterer acquires a regional business, the commercial rationale will be to fold the acquired company into the existing regional management, and to lose not only the owner-directors but quite a lot of other staff and the premises as well.


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Consistent sales and profit growth history are valid comfort Your reaction may well be that this is comparable to driving a car using only rear view mirrors. Not at all. I passionately believe that the three previous years performance of a target company must be understood and analyzed. It is commonplace for an Information Memorandum to show the adjusted profit before tax, possibly with the adjustments merely mentioned as footnotes. This can be misleading when vendors take a liberal view of valid adjustments. Some one-off events are valid, for example, a substantial bad debt when a ‘blue chip’ customer suddenly crashed or the revenue costs of moving office. Others are not. The cost of hiring, say, a managing director who was dismissed within months is a management mistake. Executive search fees, the salary paid and the leaving package are not valid adjustments. Similarly, if an owner-director is to retire at legal completion, the total employment costs should not be ‘added back’, if the person is to be replaced by hiring a lower cost person. Even then the net adjustment should only be made to future projections. One-off events may have boosted sales and profits. For example, the introduction of new health and safety legislation may have boosted not only the previous years performance, but the current year as well. Similarly, the company may have won a one-off contract with, say, a Middle East customer which will come to conclusion during the next few months because the project will be completed. The essential step is for the acquirer to produce a separate adjusted sales and profit history which, reflects any extra costs which would have been incurred as a group subsidiary. For example, the level of insurance cover may be regarded as inadequate or key staff may be being paid well below market rates. The adjusted sales and profit figures establish the level of sustainable profit which is the platform for future projections. If the vendors have overstated the adjusted figures, then the forward projections could be overly ambitious unless amended by the acquirer. If the adjusted figures reveal significant swings in sales and profits, the reasons must be understood. The rapid recovery from a previous years loss to a healthy current year profit, may have been deliberately boosted by overstating provisions and releasing unnecessary provisions in the current year.

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Sales and profit forecasts must be robust Vendors are prone to make ambitious forecasts for the current year and the next two years to maximize the valuation. Some acquirers respond by attacking the forecasts and attempting to get the vendors to reduce their projections, but it is highly unlikely they will agree and the rapport between both sides could be soured. My advice is to: ask the vendors to explain the basis of their forecasts and the underlying reasons. If the forecasts are over optimistic, say so and explain why politely; then the acquirer should compile his own forecasts and base the valuation on them, taking into account any additional costs as outlined earlier. Overstated forecasts by vendors may be based on an arbitrary, say, 15% annual compound sales growth largely without any tangible reasons. Similarly, fixed cost projections may remain virtually unchanged despite the fact that sales are projected to increase substantially. My experience is that so called fixed people costs are remarkably variable.

Demonstrable cash generation is a major plus A profitable company will not necessarily survive. Survival is dictated by cash flow generation. Namely, the ability to pay invoices and not to exceed an overdraft limit which causes the bank to impose penal sanctions. An overdraft is renewable annually and repayable on demand. Never forget that. A management buy-out is financed by a lot of debt and the bank will impose covenants for the ‘cover’ of interest payable by profit. Failure to operate within the covenanted limits set by the bank will bring a swift and tough response. In contrast, a consistently cash generative business is a joy to own. An excellent example is a subscription magazine, where the annual subscription is often collected by direct debit before the first issue is delivered! Many other service companies are inherently cash generative too, because sizeable cash deposits are payable on placing the order.


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Realizable surplus assets are a plus factor A freehold warehouse may soon become vacant by using available floor space within the group. The cash flow benefit must reflect a realistic view of market value and saleability, agents fees and the time needed to complete a sale. If there are unwanted items of equipment and redundant stock, it makes sense to sell them to release floor space and to help good housekeeping, even though the cash realized may be modest.

Tax and VAT need to be clean It would be naïve to regard tax and VAT to be a non-issue because the vendors will be obliged to provide a full indemnity for any unexpected liabilities up to legal completion. Accounting fees to handle issues which arise will be covered by the indemnity, but there is likely to be significant in-house management time involved as well. Ideally, the vendors will have ensured that up-to-date tax and VAT returns have been submitted and agreed. If there is an Inland Revenue investigation pending or in progress this should be cause for concern. An investigation may start on a seemingly limited basis, but it will be widened in scope as necessary. Furthermore, two years may be needed to reach final agreement with the authorities. Unless part of the purchase consideration is to be held in an escrow account, there is always a risk that it may prove difficult to get payment from the vendors. By then, the cash received may have been given to the next family generation or placed in an obscure Liechtenstein based trust, or whatever.

Undue customer or supplier dependence is a potential risk There are cases where one customer accounts for more than 70% of total sales in the target company. The vendors are likely to stress that the account has grown annually for the past twenty years. So be it, but it is cold comfort. The customer may be taken over and a rationalization of suppliers implemented. It is quite commonplace in service companies that, say, the five largest clients will account for 80% of the total sales. If any one of these is lost the company

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may be plunged into loss, and it is unlikely that cuts can be made in fixed costs to offset completely the loss of gross margin. Supplier dependence may pose a real threat. I have come across cases where there is a no written agreement at all, because the two parties could not agree the wording but the target company was ‘assured’ that they would have an exclusive supply agreement for as long as desired. Recent face-to-face contact with the supplier may have been occasional at best. The source of supply could be China, Thailand or Cambodia, or wherever. Without an adequate written contact, however, the source of supply may switch to other customers and exclusivity will be lost.

Major customer contracts due for renewal are a cause for concern Many facilities management supply agreements are based on a fixed period of between one and seven years. If a major customer contract is due for renewal within a few months there is legitimate cause for concern. The answer might be to wait until the contact is renewed before legal completion, but by then another major contract renewal may be imminent. Worse still, some of these contracts give the customer the right to terminate the contract prematurely at, say, three months notice. Some comfort may be achieved by the vendors agreeing to meetings with a handful of major clients, but only when all of the contract details have been agreed and only within seven days of legal completion. An alternative response may be to obtain an indemnity against identified contracts not being renewed and cash placed in an escrow account. The wording will be a contentious issue, however, and could become a deal breaker.

Relocation may be a plus or a minus Existing floor space within the target company may be inadequate to handle the projected growth. The vendors may agree to retain the freehold and to rent the premises for an agreed period of time, which could provide sufficient time to move to other premises with ample room for expansion.


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If the vendors wish to retain the freehold to benefit from development for alternative use, perhaps for residential housing or a supermarket site, this could be a plus factor, provided you are satisfied that alternative premises can be found locally and you obtain a rental agreement offering ample time to relocate. For example, if the vendors are only prepared to offer 12 months continued usage, it means that relocation must become an urgent priority immediately on legal completion.

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Chapter 3 Develop your strategy into an acquisition profile Strategy needs focus Evaluate alternatives to acquisition Organic growth Trading agreements Strategic alliances Minority equity stakes A joint venture or consortium A majority equity stake Performance-related deals Assess the likely number of acquisition targets Write an acquisition profile to focus your acquisition search Maximum cash available for acquisition


Chapter 3 Develop your strategy into an acquisition profile An effective strategy needs to define market segments, commercial rationale and priorities. It cannot be shrouded in vague aspirations if an acquisition search is to be successful. Probably the worst case I ever came across was the finance director of a private group who was seeking help to sell a subsidiary which was deemed to be non-core. I discovered that it had been acquired only four years ago and the group managing director ‘could not remember why it was acquired’. The financial director had only joined 18 months ago, and so he regarded himself as innocent. You might feel that I have described a unique situation, however, there are plenty of lesser cases of sloppy thinking giving rise to expensive acquisition mistakes. The vital ingredients for a successful acquisition campaign are: •

a clearly articulated strategy

•

an evaluation of the alternatives to an acquisition

•

recognition of the management strengths and resources available within the group

•

the purchasing power available and/or obtainable to fund the acquisition

•

a written Acquisition Profile, agreed by the board, as the template to measure the relevance of possible acquisition targets and to focus on acquisition search

Strategy needs focus The following questions should be answered rigorously to provide sufficient clarity and focus for a strategy to be a powerful tool to develop the company or group, either by organic growth, other alternatives or acquisitions: •

Which existing market segments should we concentrate our future effort and investment on? Why? Has the choice been researched adequately?

•

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Which countries (or regions) should we concentrate on?


3 D E V E L O P Y O U R S T R AT E G Y I N T O A N A C Q U I S I T I O N P R O F I L E

•

Which market segments and countries/regions do we plan to enter? Have we considered alternatives adequately and rigorously evaluated the new opportunities selected?

•

How will our commercial rationale differentiate us from our competitors?

•

Which market segments, countries and products should we phase out or withdraw from?

•

Which divisions and subsidiaries should we consider selling, or encourage management buy-outs for?

•

What finance, people and expertise can be made available to achieve our goals? Are these adequate? If not, how can the shortfall be overcome at an acceptable cost?

•

What threats or opportunities may be posed by developments in technology, social change, political factors, terrorism or international pandemic? What contingency plans are needed?

•

Are our organizational structure, management development programmes and staff recruitment programmes designed to help achieve our plans? If not, what changes should be made?

Evaluate alternatives to acquisition There is abundant anecdotal evidence that directors and senior executives enjoy the excitement of the ‘acquisition game’. But it is not a game, it is deadly serious because outright acquisition is so often the highest risk option. It is totally inadequate to give merely passing thought to other alternatives: they must be assessed in a thorough and positive way. The pros and cons of alternatives to acquisition are set out below.

Organic growth Organic growth is boring and hard work, but it is a powerful and cost effective way to grow a business. Furthermore, the medium-term success of any acquisition will require a commitment to organic growth within the business. It would be naive to think that a string of bolt-on acquisitions will eliminate the need for organic growth, because they are more likely to create a rag bag of businesses.


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If a market segment is growing rapidly or the company has been slow to enter it, I accept that belated organic growth may be too little too late. Team head-hunting should be considered. There are countless cases in a wide range of service businesses, where recruiting a nucleus of key people has accelerated growth. More importantly, entire teams have been recruited successfully. The key requirement is to offer a medium-term opportunity to accumulate wealth in addition to a competitive salary and bonus package. It is not necessary to give an actual shareholding at the outset, options or even ‘phantom’ options can be used. It is vital, however, to construct a scheme which does not incentivize key people to leave by cashing in at a time of their choosing. Even a highly respected investment bank fell into this trap. A team leader and three key executives were recruited to enter a new market segment. Unfortunately, after two years each person could realize their capital gain for cash whenever they wished. Unexpectedly, the team leader came under pressure from his wife for the family to return to their native Scotland. The capital gain available was such that he could retire from investment banking, buy a country house and start up a new business. Worse was to follow, within six months the other key members left because the departure of the team leader left a gaping hole in the business unit.

Trading agreements When pursuing diversification into either a new market segment or overseas, a trading agreement can offer a tremendous learning opportunity and generate worthwhile profits and cash flow for a modest investment. Alternatively a trading agreement may be a valid strategic goal. Supermarkets, and even soccer clubs, may decide to exploit their brand strength by offering a mobile phone service to their customers or financial services such as a credit card. Typically, the supermarket or soccer club will enter the market by securing a trading agreement with a major mobile phone operator or financial institution. Serendipity is unlikely to provide you with trading agreements. A clearly articulated strategy is required and the initiative taken to find a suitable partner. If agreements in a particular market segment are either infrequent or unknown, do not be deterred. The approach needs to be exposing your company to the risk of success, by knocking on doors and kissing lots of frogs to find your trading partner.

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Strategic alliances My definition of a strategic alliance is simply a business development project carried out by two or more organizations, without necessarily creating a new limited liability company or taking an equity stake. For example, car manufacturers such as Ferrari will fund a dedicated Formula 1 team as a logical development of their business. For independent teams, however, adequate funding to have a competitive team must rely on commercial sponsors, and this has become more difficult as a result of European Union legislation restricting sponsorship by cigarette manufacturers. Developing and manufacturing a suitable engine is unaffordable and it may be necessary to form a trading agreement for the supply of suitable engines. Another form of strategic alliance could be to fund a dedicated research team in a university which is recognized as a centre of excellence within the industry sector, to develop a new process, technology or product. The ‘partnership’ may include using the developments for academic purposes and publication in due course, provided that the commercial interests of the funding partner are adequately protected. Some professional bodies have chosen to outsource the provision of dedicated training courses and seminars to a specialist company, rather than create an in-house capability. The important features include: •

a fixed term agreement with renewal options and a break clause

•

the design of courses and seminars which meet the needs of members, and are not merely standard courses which are ‘re-badged’

•

either a profit sharing agreement or a management fee paid to the provider

Successful strategic alliances have led, in some cases, to the formation of a jointly owned company. There are many more cases, however, where one partner has become dissatisfied and the alliance terminated because not enough attention was given to discussing the management styles, the decision making process, and the resources to be provided by each partner. Compatibility is the key to success, but the rationale for the alliance may simply expire for one of the partners and they will want an exit.


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Minority equity stakes Some business executives naively think that acquiring a minority equity stake reduces the risk involved. Clearly, should the business fail then the financial damage will be less, but it does not justify any less commercial, environmental and financial due diligence compared with outright acquisition. Acquiring a minority equity stake is recommended only in specific circumstances. The danger which must be avoided is being ‘locked’ into an unlisted company without management control, or even significant influence. In such a case the only available way to realize the investment may be to offer the minority equity stake for purchase by the other shareholders. There can be no guarantee that they will be prepared to buy the equity, and the price offered may be downright unattractive or unacceptable. A minority stake may be appropriate when purchasing in a country where one has limited knowledge of the cultural, social and management customs. If a minority stake is acquired the purchase should provide: immediate board representation to enable the purchaser the opportunity to learn more about the country and the business from within, and to influence future development an option to acquire either majority or outright control within a given period and at a prescribed price or valuation formula In some countries, legislation demands that foreign companies are restricted to minority equity stakes in certain industries. Provided management control can be achieved, this may be better than rejecting the opportunity altogether. Another key factor in the decision may be the ability or otherwise to repatriate funds. One reason to acquire and retain only a minority stake may be to secure distribution outlets. For example, in some countries an oil company may acquire a minority equity stake in several commercial oil distributors to ensure distribution outlets for its own products. Another possible reason for taking a minority stake is to seek some form of preferential treatment from a key supplier. This may be a sound reason, but the trap of investing in a key supplier to avoid the company being wound up could prove to be an expensive way of merely delaying the inevitable loss of a source of supply.

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Whenever a minority stake in a supplier is being considered, the commercial rationale should be rigorously examined and alternative sources of supply evaluated before deciding to invest.

A joint venture or consortium Based on personal experience, some people dismiss any thought of a joint venture as merely a recipe for backbiting between the partners. I readily admit that this could and does happen on occasions, but it can be avoided. The oil industry and the international civil engineering sector have had to make joint ventures and consortiums work because: •

the financial risks involved in a speculative oil exploration project may be unacceptably large even for a global company

•

the construction of a major dam may require other partners to contribute specialist expertise such as underwater engineering

The key tips for success: •

Select partners with compatible management and decision-making styles, as well as a common language capability. UK companies may find that Scandinavian or Japanese companies operate very differently.

•

Agree at the outset the management team to run the venture based on either individual ability and experience or the most suitable partner, not necessarily the largest shareholder.

•

Avoid any undue interference in managing the venture by non-executive directors or group staff.

•

Realize at the outset that within a few years the commercial objectives of the partners do change. It may make sense for one partner to buy out the others, to sell the business or pursue a stock market flotation. To discuss this openly before creating a joint venture company is to be realistic and not negative at all. It requires more that a clause in the articles or management agreement such as any partner may offer to buy out another by making a written offer and then 30 days are allowed to make a counter offer, say, at least 5% higher. Discussion of the issues involved are essential, and some contractual clause may prove to be totally unworkable.


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A majority equity stake I find it difficult to justify taking a majority equity stake rather than acquiring 100% at the outset for a domestic acquisition. Possible different expectations may include: •

the individual vendors expect to receive a dividend to boost their income, contrary to group policy

•

additional funds may be needed for expansion, but individual vendors will not expect to provide cash or to guarantee a loan

•

the formula, conditions and timescale for the obligatory sale or purchase of the minority stake

It would be entirely wrong to assume that a minority stake is the only way for vendors to receive a deferred capital gain. A more relevant option is to negotiate a performance-related purchase which is explained in the following section. When acquiring overseas, however, persuading the vendors to retain an equity stake or inviting a local partner to invest may make good sense. A Footsie 100 group in the financial services sector decided to enter the Italian retail investment product sector. Their concern was that market research showed that Italians had a marked preference to invest their savings with a company with an ‘Italian feel’ about it. The answer was to find a local financial services company in an adjacent market segment and persuade them not only to co-invest but to find an Italian chairperson and two non-executives who would command the respect of Italian customers.

Performance-related deals Most acquirers recognize that an attractive service contract is unlikely to maintain the motivation and commitment of a vendor who has made a large capital gain by selling shares. A performance-related purchase, often referred to as an earn-out deal, assumes that: •

100% of the equity is acquired at the outset at a price which reflects the performance and assets of the company to date

•

the vendors have a contractual right to receive a deferred capital gain provided that agreed profit before tax targets are achieved during the remainder of the current financial year and usually either one or two subsequent years

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Vendors are likely to require that: •

the company continues as a stand-alone business during the earn-out period, rather than be merged with another business or operation

•

one of them continues as managing director throughout the earn-out period

•

all continuing directors will have a fixed term service contract for the earn-out period plus, say, a further three months during which time the final accounts can be agreed as a basis for calculating any earnout payments

Purchasers dislike earn-out deals just as much as vendors do because of the added complexities involved. Furthermore, many corporate financial advisers have insufficient knowledge and experience to negotiate an earn-out deal, but this will not necessarily deter them from trying. Chapter 6 contains detailed guidance as to how to formulate and negotiate an earn-out deal. I started life as a corporate finance advisor with an unfair advantage, acting as a principal I had negotiated six earn-out deals and was accountable for them until the final amount of earn-out payment was calculated.

Assess the likely number of acquisition targets This needs to be done as an integral part of deciding the most relevant option to select. If the likely number of relevant acquisition targets is only one or two, and this does happen, then other alternatives need to be evaluated as a fall-back. At a public seminar I presented, one delegate asked, “How do I prioritize my acquisition search because I have identified more than 600 relevant target companies?” I just managed not to laugh, but some delegates did. When the number of targets is either very small or unworkably large, it is necessary to review the search criteria. Ideally, there should be at least a handful of targets but not more than, say, 50.


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Write an acquisition profile to focus your acquisition search An Acquisition Profile needs to be written, and authorized, before any search is initiated. It will minimize abortive effort and accelerate your acquisition programme. I was asked to review an acquisition search by the chief executive of a substantial listed group because “our dedicated team has failed to find a suitable acquisition after two and half years so they are clearly getting it wrong.” Their brief was to acquire a leisure company, listed group, subsidiary or privately owned, to become the cornerstone for a new profit stream. The team was invited to be imaginative in their search. I found the search work to have been done extremely well, despite the ludicrously vague remit. Recommended targets were submitted in writing to a committee made up of the group directors. To ensure a consensus, a target had to receive unanimous agreement by the group directors. I asked them to humour me by reviewing six companies again with me which seemed relevant. Each one had been rejected by personal subjectivity. A caravan park operator was rejected because one director said “I would never holiday in a caravan park!” The outcome was that one of the six companies was acquired and proved to be a successful new profit stream. An Acquisition Profile should not exceed two pages, and it should address: •

market segments, products, services

•

commercial rationale

•

maximum cash available for acquisition

•

maximum total purchase consideration

•

minimum size

•

minimum profitability

•

management and management style

•

location

•

key requirements for success

•

financial return to be achieved

Each of these items is described below to provide a basis for writing an Acquisition Profile.

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Market segments, products and services Clarity is key. A vague description such as leisure or support services is a recipe for abortive effort, because these are open to countless interpretations. Conversely, a car park management company serving public sector clients such as hospital trusts and leisure centres gives focus, and avoids the temptation to acquire a company because it is up for sale.

Commercial rationale This should spell out the key reasons for acquisition and, ideally, how the business will be differentiated from competitors. For example, the financial squeeze on hospital trusts and leisure centres means any extra sources of income are very attractive. The market is growing rapidly and it could be offered to existing clients for whom we provide other support services in the public sector. The business model will be to charge a management fee and to have a profit sharing agreement with each client.

Maximum cash available for acquisition This should take into account any cash requirements of the existing business and the likely needs of the acquisition over the next two years, which often tend to be underestimated.

Maximum total purchase consideration This should take into account any term loan, issue of loan stock or shares to finance the purchase, and reflect the asset allocation by sector to be pursued by the acquiring group.

Minimum size The amount of management time to negotiate an acquisition and to integrate it differs very little regardless of size. I strongly recommend one sizeable acquisition, rather than a handful of smaller deals. Turnover and/or gross profit can be used as an indication of size, as an alternative to profit before tax.


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Minimum profitability Acquiring a loss making company will be less costly than a profitable one, at least in the amount of purchase consideration. The harsh truth, however, is that some bargain acquisitions bought for just £1 and an assumption of liabilities have proved to be disastrously expensive. Key issues before buying a loss making or underperforming business include: If it is to continue as a stand alone business, rather than be folded into an existing operation, an experienced chief executive and financial director need to be injected immediately to work full-time. The causes of underperformance must be established before completing a deal, and never assume that the reasons outlined by the vendors are accurate. The action required to eliminate losses must be articulated pre-deal. Statements of motherhood such as overhead reduction and increased selling prices are dangerous. If people are to be made redundant, a provisional list needs to be identified, and the implications of the Transfer of Undertakings and Protection of Employees legislation must be taken into account. Any assumption of increased selling prices should be based upon commercial due diligence, and not simply a hunch.

Management and management style Continuity of management and a compatible style are important issues, unless the business is to be folded into an existing operation. In some sizeable private companies, even minor decisions are made by the directors and substantial decisions are based on instinct alone. The key is to sell the need for different management disciplines and to avoid the loss of entrepreneurial flair. Where a performance related deal is negotiated, it must be realized that the shareholder directors will almost certainly leave as soon as the deferred purchase consideration has been achieved. More importantly, if the directors realize that they will not earn any more because performance targets will not be achieved, do not be surprised if they decide to leave prematurely. From the outset make plans for when the directors leave by having executive directors ready to assume management control.

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Key requirements for success On countless occasions, an acquisitive client has presented me with an Acquisition Profile with as many as 10 or 20 key requirements for success. In fact they have defined the perfect company to acquire, which simply does not exist. I believe there should be no more than two or three key requirements for success. Furthermore, it may be that no company exists today in the market segment with more than one or two key requirements for success. So be it, but the key requirement for success is to be able to change and develop the company postacquisition into a successful business.

Financial return to be achieved The financial return expected should be specified at the outset. Many groups use a discounted rate of return calculated after corporation tax, typically calculated for a period of at least seven years. The question of valuation is addressed in Chapter 5. Discounted cash flow analysis is not a panacea which will ensure an ‘accurate’ valuation. In most sectors, forecasting more than two or three years ahead is nothing more than guess work, because market and technological change are likely to alter the playing field substantially. For example, it is not long ago that the oil prices were forecast to reach $60 a barrel. Today prices are higher than $70 a barrel. Furthermore any cost rationalization or unlocking of synergy is likely to be realized within the first couple of years or so, or never achieved at all! So, unsophisticated though it is, I believe the benchmarks to measure acquisition success in financial terms is by what is achieved in the first two or three years in terms of: •

sales

•

% gross margin

•

profit before tax

•

cash generated or injected


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Chapter 4 Find relevant targets and woo vendors A UK in-house search – initial stages Be wary of using external advisers An in-house UK search – main search Don’t just contact vendors, woo them from the outset The initial meeting with the vendors The key meeting to obtain streetwise information from the vendors An overseas search


Chapter 4 Find relevant targets and woo vendors The vital ingredient for a successful acquisition programme is not the identification of targets, but the ability to woo vendors. In my experience, both as an executive and professional adviser, the most successful acquisitions have been those where the company was not for sale until a persuasive approach was made. Also, never forget that when a company is being marketed, the reasons for sale outlined by the vendors may be plausible but are often not the key reasons and are merely a smokescreen.

A UK in-house search – initial stages For an acquisition search in an existing market segment it is possible that the identity of every worthwhile target company is known. Even for an adjacent market segment, however a systematic search may be essential. Provided that one person is given accountability, with a deadline for completion, it is entirely possible to carry out an acquisition search in-house. Valuable sources of information include: •

Market sector surveys which are published annually for a wide variety of sectors, and cost typically between £250 and £500. Although compiled from annual reports sent to Companies House, which means that the figures are somewhat out of date, these are a highly cost effective means of identifying the names of possibly relevant companies.

•

Commission a sector survey to meet your needs. If no sector survey is published, approach a debtor rating service and ask them to produce a tailor-made list based on your criteria for: –

the standard industrial classification number for the segment you wish to search

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–

a range of acceptable turnover

–

minimum pre-tax profits.


4 F I N D R E L E VA N T TA R G E T S A N D W O O V E N D O R S

The cost is likely to be similar to that of a published sector survey, or somewhat higher depending upon the number of target companies. Let there be no doubt, however, that the above approaches are simply quick, cheap and ‘dirty’, in order to assess the likely number and names of target companies. The next stage is to visit websites of the companies identified to assess whether or not their business model fits your acquisition criteria, and only then to incur the cost of obtaining a copy of the most recently filed and abbreviated Annual Report for each company still included in the search. One acquisition approach which is destined to fail, in my experience, is when the chief executive announces to board members that it is their responsibility to bring relevant target companies to the attention of the board. It will simply be quickly ignored and forgotten. I do not rule out, however, getting together a group of people with wide industry experience from within the business to brainstorm possible targets. The next step, however, should be to consider the use of external advisers before proceeding with an in-house search.

Be wary of using external advisers I do not reject using external advisers, but you need to be extremely wary of the methods to be used and hard nosed about their rewards. At the initial meeting with you, the external adviser should: •

Demonstrate their sector experience

•

They may have virtually none, so they will be learning at your expense. Ask them how many legally completed deals they have achieved in this, or closely related sectors. What is their knowledge of recent deal activity in the sector and prices paid? This is basic pre-meeting homework which they should have done!

•

Outline their search techniques One corporate finance adviser told me they typically sent out up to 1,200 emails to prospective vendors (a really selective approach!) saying they had been appointed by an un-named buyer.


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In addition, they emailed at least 75 intermediaries to ask if they were acting for any relevant vendors. This can be effective because it will identify companies already for sale. (No follow up was done whatsoever, and this was their search process.) •

Be ready to challenge your acquisition criteria. If the external adviser is sufficiently knowledgeable or has done adequate homework, they should be ready to challenge your acquisition criteria to be: –

too broad to focus a search

–

too narrow that barely any candidates exist

–

in a sector which looks unattractive

–

and be able to demonstrate their ability to open doors for you

The adviser should confirm they will telephone the decision-maker in target companies to say that they are acting to acquire for an un-named (at this stage) client and offer to meet prospective vendors to reveal the acquirers identity and outline their rationale. Establish the fees charged and exclusivity offered. You should reject a consultancy approach. Some search firms seek to simply provide you with a written report on each relevant target company, and leave you to progress them, for a fixed fee reflecting the time spent. The search adviser cannot lose and has no incentive whether you acquire or not. The search adviser should do comprehensive research and open doors for you, as outlined above, for a fixed fee, which means they will make a loss unless you legally complete a deal. I believe that £10,000, plus out of pocket expenses is a reasonable reward for the work and 1% of the deal value, but only paid when the purchase consideration is paid to the vendors by you, otherwise in an earnout you pay sizeable fees at legal completion for earn-out payments which are never paid because of underperformance by the acquired company. The question of exclusivity is one of vital protection for you. Some search advisers may assume that target companies rejected by you or where your approach is turned down by the vendors are fair game for them to be appointed to sell these companies! Who knows whether you may want to acquire these companies in a year from now or, indeed, whether or not the vendors will be ready to sell to you by then. Do not deprive yourself of the opportunity.

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An in-house UK search – main search Meetings with prospective search advisers will help you to decide whether or not to do an in-house search and, more importantly, you should gain some useful tips to help you to carry out an in-house search effectively. The initial stages of an in-house search described earlier in this chapter, means that you have: •

identified the names of (possibly) relevant target companies, with their last reported turnover, profit before tax and net tangible assets

•

visited the websites of these companies to check the relevance of their products, services, business model and locations to rule out unsuitable companies

•

obtained the most recent abbreviated Annual Report available from Companies House, rather than the full report, to avoid unnecessary expense

It must be recognized, however, that Annual Reports may be misleading for the purpose of an acquisition search, because it may be that: •

private companies deliberately understate profits to minimize their corporation tax liability

•

subsidiaries of groups may understate their profits as a result of transfer pricing or management charges applied by group

•

businesses, even large ones, of a group operate as a trading division and may not be captured by electronic searching

•

a management buy-out company which may have profits depressed by the interest cost from a large debt used to finance the purchase, and would disappear as a result of an acquisition

The reality is that the only way you will obtain reliable information is direct from the vendors, and this is why it is vital to woo them. Another avenue to pursue at this stage is to contact selected corporate finance advisers and business brokers in order to find out if they have been appointed to sell companies which are relevant for you. Middle-market corporate finance advisers sell companies primarily in the £5M to £100M deal value range. These firms include the middle tier of accountancy firms, outside of the Big 4, and independent corporate finance boutiques.


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Business brokers handle deals mainly in the £2M to £10M deal value range, and you should realize that they will expect you to pay them a finders fee for introducing a deal which you legally complete. They have standard fee scales, but don’t just accept this and negotiate persistently. Investment banks, even the smaller ones rarely get involved in deals less than £100M in value and the larger ones could well focus only on £1 billion plus disposal mandates.

Don’t just contact vendors, woo them from the outset People are bombarded by so much email that a request to explore a mutual opportunity (unsaid, deliberately, for you to acquire them), may be ignored as another junk email. Curiously, today, the old fashioned letter has more impact because directors receive relatively few of them. Many, many vendors, however, tell me they get at least one every quarter and many are consigned to the waste paper basket. Effective wooing of a prospective vendor needs to be done person-to-person. Ideally you have met the person before and can arrange a lunch to explore (unstated) mutual opportunities. Failing that, perhaps you know, or could find someone, who could introduce you to the vendor and this will lead to a lunch. Either way, towards the end of the lunch it would be reasonable to say “whenever the time does come for you to think about a sale, we would be interested”. Then listen to the response. If it is to rule out a sale for several years, make sure you maintain contact, say, about quarterly because circumstances may and do change unexpectedly. If you do not know the vendor, or are unable to obtain an introduction via someone else, a telephone call to arrange a lunch to explore ‘mutual opportunities’ needs to be made. External advisers, particularly corporate finance people, have in-built advantages. Firstly, they have plenty of experience of making these calls. Secondly, they are able to say that they are carrying out a tailor-made search exclusively for a client and research has identified the vendors as a relevant target. Usually, the acquirer will not want to reveal their identity at this stage, and the adviser will offer to visit the prospective vendors, name the prospective acquirer, explain

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the commercial rationale and describe the deal history of the vendors. The advisers must sell the acquirer as an attractive partner offering a compatible deal from the outset. Remember there are no silver medals for acquirers! Either the adviser persuades the vendor to meet the acquirer, and ideally the adviser will be present to introduce people and to make sure the first meeting is effective, or, there simply will be no deal in the foreseeable future.

The initial meeting with the vendors This assumes that the vendors have indicated a willingness to at least have one exploratory meeting. In advance, the acquirer should offer a confidentiality agreement to protect the vendor or be prepared to sign one provided by the vendor, which can prove tricky. Some multinational corporations insist that their legal department approves and negotiates or insists on required changes! This is potentially a huge turnoff to a prospective vendor and must not be allowed to happen. At this stage a confidentiality agreement should be designed to be a comfort factor for the vendor. If a deal progresses, a more suitable and wider ranging confidentiality agreement can be signed. The venue of the first meeting is important. Vendors should reject a meeting on their premises, because it is possible that a member of staff may recognize the acquirer from photos in the trade press, or having worked for the acquirer previously, and speculation will be rife. It should be a neutral venue, either at your advisers offices or in an hotel meeting room convenient for the vendors. Numbers attending should be small to underline confidentiality. It is vital that the acquirer is represented by a key decision-maker, otherwise this will unsettle the vendor, and ideally only one other person. The purpose of this meeting is to woo the vendors and to convince them to agree to a meeting to share more detailed information with each other.


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At this stage, the acquirer must demonstrably give more information than the vendor, subject to stock exchange limitations. A written agenda would be too formal, but the following should be covered: •

Understand the vendors personal aspirations, timescale for leaving the business and particular concerns about selling.

•

Outline the business rationale, future development plans and management style of the acquirer.

•

Name any acquisitions made in recent years and how these have turned out. Ideally, the acquirer would extend an invitation, to be taken up as and when appropriate, to meet recently acquired companies.

•

Give comfort, but only if appropriate, that the current thinking is to retain the present business locations, senior management team and the staff, whilst adding tactfully that the acquirer knows relatively little about the inner workings of the target company.

•

Discuss current year performance to date in outline and the forecast result for the current year. The acquirer may be happy to offer a printout of the management accounts summary pages, but it should be assumed the prospective vendor will only wish to talk about current performance at this stage.

•

Ask the vendor, if the meeting is going well, if they are happy to arrange a further meeting to exchange more information which will allow you to outline an offer and a timescale. If the vendors agree, they should be given time to appoint advisers and have them present. If the vendors are not ready to agree, however, you need to establish their specific concerns and gently reassure them during the meeting. Failure to get agreement to another meeting cannot be allowed to put a deal in abeyance. If the vendor has legitimate concerns, such as consulting other shareholders or family members, then this must be allowed to happen but follow up is essential.

Successful acquirers must not be deterred!

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The key meeting to obtain streetwise information from the vendors The decision-maker of the acquirer should have an informal meeting with the vendor first, in order to outline the information to be collated, to give the vendors time to prepare and, if necessary, cajole and negotiate to obtain sufficient information to provide an adequate basis for valuation in order to make an indicative offer to the vendors. Failure to have this preliminary meeting may well reduce the key information gathering meeting to a shambles. The acquirer should provide an in-house team for the information gathering meeting. The time and place for due diligence by external advisers is only when, and if, Heads of Agreement have been signed. The objective is not simply to ‘audit’ or verify past performance, or even the current year to date. The aim must be to assess both the short and mediumterm future prospects as well. The art is that of prospecting for and assessing the quality of the gold ore still in the ground, not just counting gold bars in the vaults. The essence of a successful initial investigation of an acquisition target is to identify the vital factors for success in the business concerned and to examine these in some depth. On the negative side, one should be looking out for vulnerable features of the business and assessing whether or not the performance has reached a plateau or is about to decline. On the positive side, equal importance should be given to identifying latent opportunities for profitable development and any undervalued assets. Another important factor to assess during the investigation is whether or not the management styles of the companies are compatible. For example, a requirement to operate complex and rigorous financial planning control procedures may be unrealistic to people used to working in an informal way with only rudimentary budgetary control. Information obtained should not be restricted to financial data. The scope of the investigation must be wide enough to give an overall picture of the business, covering marketing, sales, research and development, operations, administration, human resources and staff relations. The investigation should produce information sufficient to enable future profit and cash flow projections to become a basis for deciding the value of the company


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to the purchaser. Also, an assessment of the present balance sheet worth of the company needs to be made. The initial investigation should only be regarded as complete when one can comfortably make a firm recommendation either not to proceed further or to value the business and to formulate an offer. Formal profit and cash flow projections for more than the current year are uncommon in private companies. It may be appropriate to ask the directors to construct a profit forecast for the next financial year and to give broad sales projections for the following two or three years. The information and assumptions used as the basis for these forecasts must be known. Then the team should prepare their own profit and cash flow forecasts off-site, reflecting their own assumptions and the impact of any changes to be introduced under new ownership. Some acquirers mistakenly challenge sales and profit projections made by the vendors, robustly to say the least, and seek to persuade them to be reduced. This will only create ill-will, the vendors are unlikely to collapse on the key issue for valuing the business. It is much more appropriate for the investigating team to say they feel the projections are somewhat over-optimistic, outlining their reasons, and that they will produce their own forward projections on which a valuation and indicative offer will be based.

An overseas search Firstly, take a vital reality check! Overseas acquisitions are the riskiest of all, so be sure you are equipped to manage an overseas acquisition before you commence a search. The risk increases as you move down the following list: •

a bolt-on in the same market segment for an existing subsidiary in the country

•

an acquisition in the same market segment where you have your own sales office, not merely a sales agent

•

an acquisition which is diversification from you existing subsidiary in the country

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AND, THE MAXIMUM RISK OF ALL: •

any acquisition in a country where you do not have an existing business. It is akin to knowingly trying to walk on water!

I do not believe that it is possible to carry out an effective overseas acquisition search on a cross-border basis, in-house. It requires, preferably a suitable executive already working in the country, or someone to be transferred for at least six months – but this is definitely second best. Most companies, with good reason, use corporate finance advisers or a specialist search company within the country. Talk to UK firms, which tend to be part of global networks, or use the internet to identify prospective external help. It is necessary to visit prospective search firms to assess their suitability before appointing one. Your approach to these meetings should be similar to that described earlier in this chapter for selecting UK search advisers. Some overseas search advisers take a really opportunistic approach, namely that as soon as you reject a target company they can either offer it to other clients or pursue the company to be appointed to sell it. Another trap to beware of is the ‘quarterly retainer’, rather than an acquisition search. You are charged a set quarterly fee in exchange for the search firm bringing to your attention any opportunities they learn about from their contacts; and charge you a scale fee on completion which is unlikely to happen. I recommend you run the other way. I am categorically not against overseas acquisitions, but my successful experience as a principal and an adviser was based upon the watchwords of realism, caution and rigour.


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Chapter 5 Use commercial common sense to value a business and make an offer Adjusted profit history and forecasts are vital Quantify major cost rationalization opportunities Calculate the adjusted net assets Use your own adjusted profits for valuation Structure the offer to reflect vulnerabilities Discuss your offer face-to-face with the vendors


Chapter 5 Use commercial common sense to value a business and make an offer Arguably, the financial analysis techniques relevant for valuing a business are the same for buyers and sellers. This does not mean, however, that there is one value for a business as a going concern. Buyers and sellers should have different valuations because their assumptions should be different. Before translating a valuation into an offer, the acquirer should take into account: •

How long have the vendors been trying to sell or actively market the business?

•

Has a previous deal fallen over? This may well have been (unsaid by the vendors) because of unsatisfactory due diligence.

•

Are there pressing personal issues prompting a sale such as terminal illness or recent divorce?

•

Are the vendors clearly wanting to retire as soon as possible

•

Which other companies are likely to bid, and do they have a reason to bid high? This does not necessarily mean you should follow suit.

•

Is there a foreseeable breaching of overdraft limits, requiring personal guarantees, or bank covenants or, worse still, administration?

•

Is the business demonstrably in decline, and the vendors are unable to turn it round?

Adjusted profit history and forecasts are vital The cornerstone of a valuation by an acquirer should be based on the profit history and forecasts, reflecting the way the acquirer will manage the business. You may feel that profit history is like attempting to drive a car by using the rear view mirror. Not so. Your discussions with the vendors may reveal that the sales and profits of the previous two years were boosted by a one-off event. For example, a change in tax rules affecting pension investments. Your aim should

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5 U S E C O M M E R C I A L C O M M O N S E N S E T O VA L U E A B U S I N E S S A N D M A K E A N O F F E R

be to create a realistic picture for the three previous years, the current year, and the next two. Vendors and their advisers know only too well that adjusted profits provide them with an opportunity to ‘increase’ the valuation base. Consequently, it is commonplace for the acquirer to be presented with a written adjusted profit and loss history and forecasts at the outset. From the vendor’s standpoint it is worth adjusting profits for the previous three years if this will help to establish a record of rising profits. One-off events which may have significantly reduced profits in a year include: •

lump sum pension contributions from directors

•

the start-up costs associated with entering an overseas market

•

the closure of premises or the termination of a product

•

the costs arising from major litigation

•

significant redundancy costs

•

the costs of relocating a factory, warehouse or office

•

a large bad debt as a result of a major customer going into liquidation

•

a strike affecting deliveries from a key supplier

•

excessive personal expenses which will cease immediately post sale

It is quite possible that a prospective purchaser will reject some adjustments to profit, but at least the vendor has set out an arguably valid profit history. The acquirer should be ready, in a non-confrontational way, to question the relevance and the amounts put forward. Some items may be a definite try-on. Additionally there may be other factors which will enhance profits for the new owners, such as: •

the directors being required to accept a reasonable executive salary after the sale, compared with the substantial rewards enjoyed as owners and directors

•

the intention that a director will retire upon the sale of the business and will not need to be replaced, or only by a lower cost executive

•

the savings arising from the termination of relatives working for the business at inflated salaries

•

the benefits to be gained from recently taken action such as a price increase, the elimination of a loss making activity and so on


45


In the case of the disposal of a division or subsidiary, the vendors will adjust the profits by ‘adding back’ charges allocated by the present group which will cease following a disposal. These include a wide range of possible allocated costs such as: •

a group management charge based on a proportion of central staff costs

•

a percentage levy based on sales value for group expenditure, such as research and development or public relations

•

service charges for the use of central departments such as information technology, payroll, pension administration and so on

Typical additional costs which the acquirer must take into account include: •

the appointment of a qualified financial controller to replace an unqualified book-keeper

•

the need for increased insurance cover

•

increasing some salaries to avoid unacceptable differentials compared with similar staff already employed within the group

•

additional pension contributions arising from employees joining the group pension scheme

As a result of the above, the acquirer should produce his own adjusted profit history, current year forecast and future projections. Sometimes the acquirer sets out to justify a higher valuation by including profit opportunities which they may be able to unlock but the vendor cannot. Beware! This means you risk paying for the benefits you hope to unlock. These should be calculated separately, and as a last resort some of this value may be used to make an increased offer. Profit opportunities which may arise include: •

purchase cost savings as a result of increased purchasing power

•

cross selling the products and services of the acquired company to existing group customers, and vice versa, both at home and overseas

•

the rationalization of premises and overhead costs

As outlined earlier, and well worth repeating, the reality is that unlocking synergy often proves harder than sighting the Loch Ness monster on a particularly dark and foggy night!

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It is simply not enough to use a percentage saving on purchasing across the board or to include a lump sum for premises and overhead cost savings. Rigour is essential. For example, people savings must be based on identified jobs which can be eliminated. Also, the one-off cost of termination must be taken into account.

Quantify major cost rationalization opportunities Some acquisitions produce substantial cost rationalization opportunities for the purchaser. Consider a private contract caterer which operates in a local geographic area and enjoys a high market share. A nationwide acquirer would be able to virtually eliminate the directors, head office staff and costs by folding the business under the existing regional management structure. Consequently, the rule of thumb in the market sector is to value businesses on a multiple of gross profit. In these circumstances, it is unlikely that an overseas acquirer wishing to enter the market could match the price because there would not be similar overhead savings. When a multiple of gross profit is used to value a business, however, any incremental overhead costs required by the acquirer should be taken into account. For example, retaining two sales executives or needing to recruit another assistant accountant. Also, there will be significant one-off costs including: •

termination payments to staff

•

new livery on vehicles

•

new stationery

•

outstanding liabilities on a property leasehold

•

the realizable value, costs and timescale for selling freehold premises

•

equipment hire liabilities

Strategic rarity or significance value must be taken into account Rarity value is real, strategic significance may be subjective. A scarcity of acquisition targets becomes rarity when there is only one attractive company available to acquire in a country in a particular market segment. Recently, US medical and orthopaedic product companies have been keen to acquire in the UK and Ireland, but the lack of private companies which are suitable


47


acquisition targets means that scarcity is rapidly becoming rarity value. In such a situation, competitive bidding may deliver an outstanding deal for vendors. Strategic significance is sometimes used to justify paying an excessive price for an acquisition, despite the fact that the acquirer cannot outline the eventual impact on sales, profit and cash flow generation to justify the offer. I believe there needs to be both strategic significance and an adequate financial return. For example, if a prospective acquirer has failed to penetrate a major supermarket chain by organic growth, then an acquisition makes sense but should be valued on the financial fundamentals of the acquisition. Sometimes, stock market listed companies feel themselves to be under pressure to make an acquisition, either to diversify into more attractive market sectors or to reduce their own vulnerability to acquisition. If they believe this to be the case, whether it is a correct analysis or not, it is likely to encourage them to pay a somewhat more generous price as a result.

Calculate the adjusted net assets Profit and cash flow generation should be the basis of valuation for the acquirer. If the balance sheet is excessive by comparison, the vendors should be encouraged to retain the freehold and to offer the acquirer, say, a three year lease with an option to extend at an agreed cost which should be reflected in future profit projections. It is useful, however, for the acquirer to calculate an adjusted net tangible asset value expected at legal completion. This should reflect the treatment of freeholds and any debt to remain on the balance sheet at legal completion. Many service companies have net tangible assets of less than 20% of the total purchase consideration an acquirer is willing to pay, and in some cases it will be below 5%. This should be sobering to prospective acquirers, and cause them to insist on an earn-out deal where some of the purchase consideration is not only deferred but is dependent on delivering increased profits during, say, the next two financial years.

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Use your own adjusted profits for valuation You may be thinking, surely future incremental cash flow generation evaluated on a discounted cash flow basis is widely accepted as a powerful technique for capital expenditure projects, including acquisition. The purist in me agrees with you, but the brutal reality is that forecasting sales, profits and cash flow generation beyond two years post-acquisition is pure guesswork in most market segments. Arguably, discounted cash flow analysis should be carried out over at least a seven year period and an assessment needs to be made of the realizable terminal value of the acquisition. The private equity players, previously often known as venture capitalists, have a streetwise approach to valuation and there are features which corporate acquirers need to know about. Private equity houses usually make an offer based on a debt free and cash free basis at legal completion, which simplifies matters. Their valuation is based on EBITDA, defined as: •

Earnings – i.e. profit

•

Before

•

Interest – because this ‘disappears’ on a debt free and cash free basis

•

Taxation

•

Depreciation

•

and Amortization

They assume that EBITDA is a sufficiently close approximation to net cash flow generated. Their valuation will be based on an exit, assumed to be on a cash basis payable at legal completion, within a maximum of five years. Their aim is to seek a pre-tax internal rate of return of 30% to 35% compound per annum, taking into account any dividend payments as well as the sale proceeds. As they would prefer to exit within 3 years, because this is likely to yield the maximum compound annual rate of return, they will check this out as well.


49


Even today, however, a surprising proportion of listed companies use a simple price earnings approach to valuing a target company. This involves: •

using the adjusted pre-tax profits of the vendor for the previous financial year

•

deducting a full rate of corporation tax, even if the target company pays a lower rate, to calculate the earnings, which is the profit after tax

•

selecting a relevant price earnings ratio by examining the P.E. ratio of comparable companies listed in the major newspapers

•

deducting about 33% from the multiple you select to reflect the fact that unquoted companies exits are typically discounted by this amount.

For example: £’000 Adjusted profit before tax of target company for previous financial year

£1,200

Assume 30% corporation tax to be deducted

£(360)

Earnings, i.e. profit after tax

£840

Average price earnings ratios of relevant listed companies

15.0

Deduct 33% to reflect unquoted exit values

(5.0)

Valuation multiple to be used Valuation derived is £840,000 x 10 =

10.00 £8.4 million

Corporate acquirers should never rely on a single valuation technique, so there is merit in using a DCF approach based on EBITDA and the internal rate of return required by the group to arrive at alternative valuations. Other issues to be taken into account are: •

Using on-line services, obtain details of deals done in the UK during the previous two years in the market segment. Recognize that the online service is unlikely to have access to adjusted profits for the vendor and this could inflate the valuation multiples given.

•

Although Price Earnings ratios for listed companies are calculated arithmetically on the previous year profit after tax, the share price is likely to reflect future profit performance. So it is useful to do another valuation of the target company based on current year adjusted profits.

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•

Which other corporate acquirers are you likely to be bidding against and private equity houses. Use this information to assess other likely bids, but not to justify your bidding higher in order ‘to win’.

Structure the offer to reflect vulnerabilities When you have arrived at your maximum deal value based on the above assessment, you need to decide the deal structure and your opening offer. If there are demonstrable vulnerabilities within the business, you should insist upon an earn-out deal at the outset. Without agreeing the deal structure in outline with the vendors, any seeming progress is likely to come unstuck. Vulnerabilities which may require protecting against include: •

the renewal of major medium-term supply contracts which must be renegotiated within the next two years

•

the risk that a group of key fee earners will leave to do their own startup or be offered a better deal by a competitor

•

major technological developments or legislative charges which are likely to or could happen

•

sales could be seriously affected by an oil crisis arising from armed conflict

In these circumstances, the initial offer payable at legal completion should fairly, but not over-generously, reflect the current value of the business. Some acquirers lose the deal at this stage, irretrievably, by making too low an offer which the vendors dismiss out of hand. It is unlikely that the vendors will agree to an earn-out of more than two financial years, and the reality is that a longer period may become problematic for the acquirer because it could hamper necessary strategic change within the business.


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Discuss your offer face-to-face with the vendors Do not be tempted to make a written offer to the vendors without a preliminary meeting to agree deal structure, including any requirement on your part for an earn-out deal, an indicative payment at legal completion and the overall deal value they could achieve from an earn-out. Vendors quite rightly often reject purchase consideration payable in ordinary shares of a listed acquirer, so you will need to approach this cautiously and flexibly, or better still, not at all. Before you send an offer letter, you need to be confident that the deal structure has been agreed in principle, you are aware of any deal breaker notified by the vendors, and that your letter will not contain any nasty surprises which you should have discussed with the vendors. Within 48 hours of the vendors receiving your offer letter, telephone them to find out if anything needs clarification. If you simply sit back and wait for them to respond they may have agreed a deal with someone else by the time you contact them.

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Chapter 6 Negotiate the deal and sign Heads of Agreement Negotiate the Heads of Agreement Earn-out deals need defining Warranties and indemnities need to be negotiated Fix the maximum liability of the vendors Joint and several liability for vendors Agree the basis to trigger a warranty claim against the vendors


Chapter 6 Negotiate the deal and sign Heads of Agreement It is virtually certain that you will need another face-to-face meeting with the vendors following your written offer letter, as they will be keen to negotiate an improvement and obtain clarification. The purpose of this meeting should be to negotiate: •

any amendments to the original offer and clarification of specific points in the letter

•

any changes to the form of purchase consideration requested by the vendors

•

the management continuity you require, or the departure of any shareholders you want to happen, without any termination payments

•

how any potential deal breaker issues will be resolved

•

a date for the meeting to draft the Heads of Agreement for signing and the granting of exclusivity immediately afterwards, which should allow about eight weeks for due diligence and the legal work prior to completion.

Negotiate the Heads of Agreement The effective negotiation of Heads of Agreement needs a structured and rigorous approach. Firstly, it is essential to understand what the Heads of Agreement are, and what they are not. The Heads of Agreement should be a more detailed description of the deal and written in commercial language. It is typically about three to six pages long, and serves as a briefing document for each side to instruct their lawyers. The Heads of Agreement are categorically not an obligation on either side to legally complete the deal. Importantly, if due diligence reveals unexpected problems, or their magnitude, the acquirer has every right to renegotiate the deal or to withdraw.

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6 N E G O T I AT E T H E D E A L A N D S I G N H E A D S O F A G R E E M E N T

Very few clauses should be binding. The most common one is that neither side may announce the deal without the express permission of the other. Some vendors may seek protection that the value of the deal will not be disclosed to the press, because they do not wish family, friends and neighbours to know how rich they have become. Yes, this does get raised. Acquirers should reject any request for a cost indemnity for the vendors if the acquirer withdraws. I have always advised vendors that it is an unrealistic request, because the acquirer will insist on a reciprocal indemnity and attach onerous conditions to any vendor indemnity so that it is virtually unenforceable. It is essential that the Heads of Agreement are framed in a tax efficient way and in accordance with company and employment law, such as TUPE (Transfer of Undertakings, Protection of Employees) legislation. A corporate finance adviser, or a suitably experienced in-house deal-maker should be able to ensure this. I strongly recommend that you agree with the vendors that neither side will bring a solicitor to the Heads of Agreement meeting. It is easy for the goodwill between both sides to be undermined by lawyers prematurely getting involved in technicalities which should be addressed later. Do tell vendors that, if they wish, their solicitors can be asked to give the thumbs up before the Heads of Agreement are signed. Send either draft Heads of Agreement or a suggested agenda. Some acquirers, encouraged by their corporate finance advisers, send a draft Heads of Agreement prior to the meeting to negotiate and agree them. This could prove to be one step forward and two steps back because the vendors interpret this approach as unduly presumptuous. My preference is to send a draft agenda ahead of the meeting and to invite the vendors to add any items they wish to be added. This means the meeting should start smoothly because the agenda has already been agreed, and the acquirer should remind the vendors that the mutual expectation is to sign Heads of Agreement within two working days and exclusivity be granted. In addition, to confirm the offer, the agenda needs to include: •

Earn-out arrangements

•

Warranties and indemnities

•

Assets to be excluded. It may be agreed that certain freehold premises are to be excluded and a medium-term lease will need to be negotiated in terms of the duration, initial rental and rent review dates. In the case


55


of a private company, assets for personal use such as cars or a boat may be excluded and a price will need to be agreed for the individuals to purchase them. The written down book price is often agreed as the value and this may well be lower than the market value. •

Form of purchase consideration. If shares of the acquirer form part of the purchase consideration, the value of the shares will need to be defined. To guard against a sudden increase in the share price working against the vendors, it may be necessary to accept that the value of the shares is the lower of the mid-price at the close of the day immediately prior to legal completion and the average share price for the previous 20 working days. When the acquirer requires some of the consideration to be in the form of loan notes, then the interest rate and payment dates, the redemption arrangements and bank guarantee will need to be negotiated.

•

Warranted net assets at completion. It is commonplace for the acquirer to seek a minimum net asset value at legal completion, with a cash adjustment to make up any shortfall. An issue which may affect the net asset figure to be warranted is the amount of working capital to meet the short-term needs of the business and this will need to be negotiated.

•

Completion accounts. The vendor may be asked to produce a balance sheet at the completion date to verify that the net assets acquired by the purchaser are in accordance with Heads of Agreement.

•

Release of personal guarantees. The shareholders of a private company may have given personal guarantees under a leasehold agreement or for a bank loan. If so, the vendors need to realize that the acquirer cannot undertake to release them from their guarantees at completion. Release rests with the holder of the guarantee and the acquirer should promise to use its best endeavours, a phrase which has legal meaning, to procure a release. Normally, there should not be any problems because the financial resources of the acquirer should be more acceptable, and any loans may be repaid at completion or shortly afterwards.

•

Job titles and service contracts. Continuing directors will usually be required to sign new service agreements with salary, bonuses, pension contributions and fringe benefits in line with the acquirer’s normal policy; job titles may be changed as well. If there is no earn-

56



out deal, then the notice period will be the normal one used by the acquirer, but when there is an earn-out the continuing directors need to ensure that their service contracts extend for the duration of the earn-out agreement, plus an additional three or four months to allow for the final accounts to be prepared, before the standard notice period comes into effect. •

Any consultancy agreements. These are sometimes encountered following the sale of a private company. The acquirer may want to have access to a ‘retiring’ director to make use of personal contacts or technical know-how for a limited period. If so, the reward must be commensurate with the amount of time spent.

•

Restrictive covenants. It is becoming increasingly difficult to enforce restrictive covenants in employee service contracts, but vendors should assume that restrictive covenants in the Share Purchase and Sale Agreement will be enforced. The covenants are likely to cover any competing business serving the same geographical area typically for a three-year period, although it may be necessary to negotiate this down to two years.

•

Pensions. It is essential that the acquirer is aware of any shortfall in the pension fund compared to the liabilities and has reflected this in the offer. Equally, the proposed pension arrangements post legal completion should be outlined and be compliant with existing regulations. Also, the acquirer must assess whether or not the reaction of staff will be hostile.

•

Due diligence. The acquirer needs to outline the scope, extent and terms of reference for due diligence. It may require persuasion and negotiation for the vendors to agree, but it needs doing now and cannot be left until due diligence commences and disagreement arises.

•

Timetable to legal completion. It is quite inadequate to agree that “because Christmas is nine weeks away, let’s agree we will target legal completion for the week before Christmas”. This is nothing less than shooting in the dark; the acquirer needs a detailed timetable in order to know promptly when the vendors are allowing the timetable to slip. The typical steps in a time table are: Heads of Agreement signed

Week 1

Draft Share Purchase and Sale Agreement received

Week 2

Due diligence commences

Week 2


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Due diligence investigation completed

Week 5

Date reserved to meet to finalize the Share Purchase and Sale Agreement

Week 6

Formal executive or investment committee approval

Week 7

Disclosure statement submitted to the vendors

Week 8

Legal completion

Week 8

The number of weeks required will vary according to the size and complexity of the deal. In a straightforward case, due diligence may require only two weeks, but in a complex acquisition it could take five or six weeks, especially if the initial work prompts the need for supplementary investigation. When a circular to shareholders is needed by a stock market listed company, either to obtain the requisite approval or to have a rights issue of shares, additional steps and time will need to be included in the timetable.

Earn-out deals need defining Earn-out deals occur in about one third of all private company sales to a corporate buyer in the UK, but rarely feature in the sale of a subsidiary. Vendors of private companies are understandably nervous about earn-out deals because part of the purchase consideration is not only deferred but contingent upon achieving agreed profit targets for usually the first two years post-acquisition. In addition to the inevitable trading uncertainties, there is always the concern that the acquirer may hamper profit achievement. Acquirers should insist upon or seek an earn-out deal if: •

the company is particularly dependent upon issues such as successfully negotiating a major five-year contract renewal in, say, a year’s time with a major customer, or a critically important sole supplier

•

profits are forecast to grow dramatically

•

the continued commitment of directors is demonstrably important; or

•

the net tangible asset backing is extremely low compared with the purchase price

Once legal completion occurs the company will be expected to adopt the acquirer’s accounting policies. There have been a few exceptions, however, because of particular circumstances whereby the company has been allowed to continue with

58



existing accounting policies purely for earn-out calculation purposes and the figures have been converted afterwards. To avoid argument and even litigation in due course, it is essential that profit is defined precisely for earn-out purposes. Typically the definition should be based upon: •

the acquirer’s accounting policies

•

profit before tax arising from the ordinary course of business – which would rule out a capital gain on disposal of a freehold property and similar exceptional items

•

an agreed and specified annual charge for services the acquirer will provide such as audit, tax advice, legal, payroll and pension administration, etc

•

a specific ‘rate card’ for group services which the company intends to use when required – examples could include rent of additional space, transport, etc

•

an interest rate, possibly linked to underlying base rates, for cash borrowed from the group to finance expansion

•

a notional interest credit for any interest earned as a result of the group placing surplus cash on overnight or short-term deposit

•

agreed rules for profit sharing when carrying out business with other group subsidiaries

The profit thresholds set for earn-out payments to be made must be negotiated using the above definition of profit. There may be other circumstances, however, which should be taken into account when agreeing the profit thresholds, for example if: •

the acquirer insists upon appointing, say, a qualified accountant as finance director in addition to the existing accounting staff, then the total cost of employment should be deducted from the threshold

•

the acquirer wishes the company to launch sales offices in Europe and the likelihood is that this will detract from the ability to maximize earnout payments, then it should be negotiated that all income and expenses arising are excluded for earn-out purposes


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Warranties and indemnities need to be negotiated Cost indemnities are a binding obligation on the vendors to reimburse the acquirer for liabilities which relate to the period up to legal completion date. The most onerous indemnities relate to taxation matters and the buyers lawyers will usually seek protection for seven years – because the Inland Revenue has a period of six years to claim additional tax payments. The vendors cannot get out of a tax obligation by claiming that both they and their auditors were completely unaware of the situation. Ignorance is categorically not a defence. A warranty puts the burden of proof on the acquirer to demonstrate that they would have reduced the purchase price, and most importantly to quantify the amount, had they known that the company was in breach of a warranty at legal completion. The buyer may ask for a three-year warranty period, but it may be necessary to accept a two year period.

Fix the maximum liability of the vendors Acquirers, egged on by their solicitors, often take a hard line and state that the maximum liability under indemnities and warranties should be the total purchase consideration, regardless of whether it is paid in cash, loan notes or shares. I believe this is unrealistic. The vendors risk repaying the entire purchase consideration even though they have a capital gains tax liability as well. Further, you may be under pressure to reduce the maximum liability further by deducting the market value of any freehold property owned by the company and which is demonstrably saleable.

Joint and several liability for vendors It is entirely reasonable for the acquirer to demand joint and several liability among the individual shareholders of a private company, which means that if any shareholder does not pay his/her share of the liability then the acquirer can pursue the other shareholders. The liability of each shareholder can be capped by all of the shareholders entering into a deed of undertaking to pay the requisite share of liability claims.

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Agree the basis to trigger a warranty claim against the vendors This subject often generates a lot of emotion and yet it can be dealt with easily and quickly. Acquirers are well aware of the management time and professional fees involved in pursuing a warranty claim if litigation is required. Consequently, they should readily agree that the minimum aggregate claim, to be pursued is £50,000. Many acquirers will probably accept that only individual warranty claims of at least £5,000 will qualify toward the minimum aggregate sum of £50,000 or any higher figure which is agreed. In stark contrast, however, cost indemnities give the acquirer the legal right for full compensation.

Any purchase consideration to be held in escrow Some acquirers will seek to have a sum of money deposited in an escrow account, held by the two firms of lawyers, to ensure that cash is available to meet warranty and indemnity claims. Although the vendor will be credited with the interest received, they will be deprived of the use of the money held in escrow. If an acquirer is insistent on holding money in an escrow account, the time to raise and negotiate it is during the Heads of Agreement meeting. Some acquirers deliberately stay silent on this point and simply include the requirement for an escrow account in the first draft of the Share Purchase and Sale Agreement. This is likely to prompt a hostile reaction from the vendors. Their response will be to reject it because the issue should have been raised at the Heads of Agreement meeting. In one case, the vendors terminated the sale to a listed group because they regarded the unexpected requirement for a 25% retention included in the Share Purchase and Sale Agreement to be a fundamental act of bad faith.


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Chapter 7 Steer the deal safely to legal completion Effective commercial due diligence is vital Environmental due diligence needs to be done on every deal Financial due diligence must include profit forecasts and the order book Pension due diligence Legal due diligence should include contractual issues and regulatory compliance Assess the disclosure statement by the vendor and negotiate changes Prepare to announce the deal internally and externally


Chapter 7 Steer the deal safely to legal completion Attractive deals sometimes fail to complete after signed Heads of Agreement because no one is accountable for steering the deal safely to legal completion. Either your corporate finance adviser or an in-house executive must have personal accountability to ensure that legal completion is achieved within the agreed timetable, unless there is good cause. Effective due diligence has to be carried out and the legal work completed. Some large accounting firms offer a one-stop-shop service for all the due diligence required. Accountancy firms are demonstrably equipped to handle financial and tax due diligence, provided they have specialist teams carrying out this work on a full-time basis. Commercial environmental and pensions due diligence are at least equally important, however, and you need to be satisfied that their individuals have the depth of experience required, otherwise appoint specialist firms.

Effective commercial due diligence is vital Some corporate acquirers regard commercial due diligence as an optional extra, which is nonsense and dangerous. Private equity firms insist on commercial due diligence and they are right to do so. It is the underlying commercial well-being of the target company which will determine the short to medium-term success of the acquisition. The key requirement for a firm adequately equipped to carry out the work for you is that they will field a team with personal experience of the market segments and countries involved. Never let advisers learn at your expense. The purpose of commercial due diligence is to answer questions such as: •

Which companies are the market leaders, and what are their business models and competitive advantages?

•

What are the underlying market, technological, legislative and social changes affecting the sector and their likely impact?

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7 S T E E R T H E D E A L S A F E LY T O L E G A L C O M P L E T I O N

•

Which overseas competitors are emerging and what do they offer?

•

Is over or under-supply anticipated in the short to medium-term in the sector, and how are companies likely to react?

•

Which competitors of a similar size to the target company are succeeding and why? And which are failing?

•

How do customers, former customers and non-customers regard the target company?

•

How is the target company rated as an employer?

Clearly, this is highly skilled work which requires contact with relevant companies to gain the necessary information, but without remotely revealing that the target company is for sale.

Environmental due diligence needs to be done on every deal It would be folly to assume that because the target company occupies new offices on an attractive site there can be no environmental risks. It is the previous use of the site which determines whether or not there is an environmental liability. You may be quite happy not to worry about environmental issues on acquisition, but the real probability is that the next acquirer will and this will cost you money should you wish to sell the business or relocate to another site. Over the years there has been growing environmental legislation which companies must follow. It is essential that a check is carried out to ensure that all compliance work has been carried out, proper records kept and action taken as necessary. Previous usage of the land may well give strong indications of potential site damage. Oil storage suggests leaks, which may need expensive clean up work. On one site, routine testing revealed that animal remains had been buried in shallow pits and were regarded as an environmental hazard. The clean up work cost a six figure sum, but at least the acquirer had the upper hand to negotiate an adjustment to the deal value. Without question, environmental due diligence is specialist work and requires appropriate expertise. The cost should be regarded as an insurance to protect against discovering an expensive liability later.


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Financial due diligence must include profit forecasts and the order book It is totally inadequate for the financial due diligence merely to adopt an audit approach up to the date of legal completion, even if the purchase consideration is being paid in full on that date. In these circumstances, some vendors react emotionally and argue that the deal value is not dependent upon future performance because it is not mentioned in either the Heads of Agreement or the draft Share Purchase and Sale Agreement, which is the prime legal document for the acquisition. This may be so, but it is a naïve response. Clearly, the acquirer values a business to reflect likely future performance. So you must be persuasively insistent that your due diligence will include: •

forecast current year financial performance

•

financial projections given by the vendors for any subsequent years

•

the adequacy and validity of the order book, for example the optimistic approach of including ‘reservations’ as part of the order book or statistically weighting possible orders to boost the figures

•

the terms of facilities management contracts with clients, which may range from three to seven years in length, but contain a clause that the client can terminate the contract unilaterally for unsatisfactory performance with only 90 days notice

If this work reveals an unsatisfactory picture then remember that you have the right to seek to renegotiate the deal or even withdraw. Taxation and VAT matters are important. The fact that the acquirer will have a full cost indemnity for pre-completion liabilities should be regarded as inadequate comfort. Ideally, taxation and VAT returns will have been submitted on time and agreed with the Inland Revenue. You need to recognize that a major issue may take more than two years to resolve with the Revenue. In the meantime, you will have to instruct and pay tax advisers. Furthermore, the Inland Revenue may insist on interviewing senior management. The final settlement may include a full repayment of tax liability, plus interest for the late payment and a penalty charge. If the issues are sufficiently significant, you may wish to delay legal completion until agreement is reached with the authorities.

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If the tax due diligence reveals any significant issues, it makes sense to insist that an adequate sum is held in escrow to ensure that the funds are available to meet the anticipated liability.

Pension due diligence Gaping deficits in pension funds have become a regular feature in the financial pages. For FTSE 100 companies, deficits of more than a billion pounds have occurred. It would be entirely wrong, however, to think that pension deficits occur only in large quoted groups. Fortunately, final salary pension schemes are uncommon among unquoted companies and these are the prime cause of deficits. Nonetheless, it is essential that due diligence is carried out on every pension scheme and any deficit is reflected in an adjustment to the purchase price.

Legal due diligence should include contractual issues and regulatory compliance Fortunately, legal due diligence is an integral and familiar part of the role of a solicitor who handles acquisitions and disposals on a full-time basis. Obviously, freehold and leasehold issues will be addressed but contractual issues and regulatory compliance need to be covered as well. Contractual issues include any matter where there is a clause which refers to a change of ownership or majority equity control. This could cover customer contracts, exclusive supply contracts with an overseas supplier and share option schemes which would enable senior executives to realize a substantial capital gain. The reality in most cases will be that the acquirer is stuck with these provisions, and a commercial assessment of the risks has to be made.


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Assess the disclosure statement by the vendor and negotiate changes The disclosure statement is potentially a sucker punch. Some vendors will do their best to avoid handing over the disclosure statement until the day of completion, but it is in essence an addendum to the Share Purchase and Sale Agreement which can negate or undermine your hard won indemnity and warranty clauses. Solicitors to the vendors should, and usually do, insist that a complete disclosure statement is made. It is not uncommon for the disclosure statement to be a briefcase full of miscellaneous documents, which requires several hours to assess the implications and, more importantly, time to negotiate/insist on amendments. The timetable to legal completion should state a specific date for the receipt of the disclosure statement by the acquirer, and this should be several days before legal completion. It is too late to follow up the non-receipt of the disclosure statement on the due date. Follow up needs to take place well in advance to ensure that there is adequate time to assess and renegotiate as appropriate. Corners must not be cut. If the disclosure receipt does not allow adequate time to assess and renegotiate, then legal completion should be delayed.

Prepare to announce the deal internally and externally Whilst the due diligence and legal work is carried out, the acquirer should prepare detailed plans to announce the acquisition on legal completion to: •

staff

•

customers and suppliers

•

regulatory authorities

Some acquirers concentrate only on announcing the deal to the management and staff of the target company, but the existing staff need to be informed as well because they may be anxious about likely redundancies and relocation. With modern technology, there is ample scope to make a welcoming and persuasive approach to new staff, but this does not eliminate the need for face-to-face meetings to answer questions, doubts and fears. If you don’t do it, the grapevine will and inevitably you will suffer.

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Email allows you to contact customers and suppliers immediately. This is not enough, however, for companies important to your future. Personal visits should be arranged and ideally involve more senior people on both sides than those involved in the everyday conduct of the trading relationship. The notification of regulatory authorities is good housekeeping but important nonetheless, and it should be done promptly.


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Chapter 8 Post acquisition management: Turn around loss making companies effectively and quickly Make an initial impact Set up reporting relationships and authority limits Establish clear rules for handling the media Keep head office interference to a minimum Get an overview of the business Start with the sales team Scrutinize overhead and administration costs Tackle production and procurement costs… and opportunities Set relevant short-term forecasts and objectives Financial planning and control need clear priorities Create a budget for the new financial year Examine research and development Address the medium-term future for the business Make redundancies urgently and humanely


Chapter 8 Post acquisition management: Turn around loss making companies effectively and quickly The turnaround of a loss-making company acquisition needs to be starkly different from the approach adopted for a company which is performing satisfactorily or well. The key to a successful turnaround is a full-time chief executive, a part-time appointment is inadequate when an acquisition is loss-making and haemorrhaging cash. Urgency is of the essence. Furthermore, it is strongly recommended that the prospective chief executive is intimately involved in the decision to acquire, otherwise you face the risk of being told later “I would never have bought this company” which may well be an excuse of a failing chief executive. Ironically, chief executives of successful businesses are often ill-equipped for turnaround success. They are used to a measured and evolutionary approach, whereas a turnaround demands urgency and at times a somewhat brutal approach. The purpose of this chapter is to outline a tried and tested approach to achieve a successful turnaround. It is unlikely that losses have resulted from a lack of effort by management and staff. The need is to redirect effort, rather than increase it, and to focus on results.

Make an initial impact The first and urgent task is to ensure the company is not trading illegally and that sufficient cash flow will be generated to allow the company to survive in the short-term. The existing management will probably expect and want immediate action from the new executive. Furthermore, they will expect the action to be tough. The executive will be rightly concerned about his or her ignorance of the company. Radical organizational change or the switching of key personnel, if implemented too quickly, might prove to be misguided measures in the months to come. Nonetheless, some impact can be made immediately, as outlined below.

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8 POST ACQUISITION MANAGEMENT

Temporary help Terminate all temporary help immediately and fill the resulting gaps by redeploying existing permanent staff. If this causes a real problem, someone will scream loud enough. In the end the business is unlikely to suffer.

Indirect staff Insist that the recruitment of all indirect personnel (part of the company overhead), including replacement staff, will need chief executive approval before any action is taken. Review all indirect staff recruitment in progress. Stop all hiring except where an exhaustive check of existing staff availability reveals an unquestionable need.

Direct staff If there is any likelihood that some redundancies will be necessary in due course amongst staff directly involved in producing and delivering the product or service, then any recruitment should require chief executive approval. This applies particularly in those countries where staff costs should realistically be regarded as fixed in the short-term, rather than variable, because of the difficulty and cost of terminating any employee.

Fixed assets Insist that all capital expenditure above a given level is approved by the chief executive. Wherever possible, delay non-profit projects such as the replacement of staff dining-room equipment, refurbishing car parks, etc. Ask that unused plant and machinery be identified with a view to disposal, and that under-utilized floor space be identified so that the use of facilities can be rationalized in due course.

Inventory Ensure that significant purchases against anticipated special orders receive chief executive approval. Material purchases should be allowed to proceed normally when covered by firm orders or when part of a standard product specification provided that stock levels are not excessive. Ask that all redundant stocks be identified and vigorous attempts made to dispose of the surplus at whatever price can be obtained.


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Offices and office equipment Cut back sharply on the redecoration of offices and the routine replacement of office equipment. The order of the day should be to ‘make do and mend’ wherever financially justified.

Personal cars Delay, wherever possible, the replacement of cars supplied and maintained by the company, and keep the authorization of additional cars to an absolute minimum.

Foreign travel All foreign travel should require chief executive approval. In one actual example, the marketing manager had arranged a three-week visit to Brazil in order to assist the company’s local distributor to expand sales. A request for a visit programme listing the companies and executives to be visited quickly established that no such planning had been done. The approval was deferred until such time as the local distributor had arranged an effective itinerary. Six months later the application still had not been re-submitted. Where significant costs are incurred on travel between various company locations, it may be possible to make savings quickly by using video conferencing techniques.

Entertaining Check expense claims to ensure that any entertaining of clients is not unnecessarily lavish. There is more at stake here than the cost of the entertaining; in a loss-making company many employees justifiably feel bitter when they hear about expense of this kind. The impact of a series of immediate actions such as those listed above (not an exhaustive list) really gets the message across that the decks are being cleared for action. The objective is to make the most effective use of the human and material resources already employed in the business. Admittedly, the impact of these actions is likely to be more important in terms of the effect on employee attitudes than on profitability and cash flow; but some tangible improvement will almost certainly result. Clearly, the turnaround executive will want to reduce the list of actions requiring personal approval as soon as his or her values and standards are shared by the management team.

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Set up reporting relationships and authority limits Select the key people with whom you want regular and close contact, at least for the time being, to address short-term problems. This does not imply creating a new organization structure, which would be premature, but is intended to create effective management communication. No chief executive can effectively authorize every item of revenue expenditure, so authority limits should be delegated to selected people as soon as possible.

Establish clear rules for handling the media This may seem a strange priority at the outset, but it is an essential one. For example, a disgruntled employee may mischievously alert the local press to the threat of imminent redundancies. Alternatively, there may be an accident or whatever. It should be made clear that the only contact with the media is to be via the chief executive. If a member of staff is contacted by the media, they must know exactly the response to be given.

Keep head office interference to a minimum Well-meaning head office executives love an acquisition, because it gives them an excuse for a day out and an expenses paid lunch. This not only wastes precious management time but it sends completely the wrong message to a loss-making subsidiary. Similar follies are the despatch of the group HR manual, or such like, which in an actual case was sent with a compliments slip stating ‘for immediate implementation’. Equally, e-mail requests for statistical information are a waste of time. At the outset, the turnaround chief executive must insist that all head office communication is made via him or her for the time being.


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Get an overview of the business Now the turnaround programme may be started in earnest. The first task is to understand what is happening in the business, before taking precipitate executive action. What is more, the answers necessary for short-term success are likely to be found amongst the middle and senior managers of the company. The key questions to be asked of people by the turnaround executive are as follows: •

What key factors are stopping you and the business being more effective and successful?

•

What inexpensive and simple action would have a substantial effect on the performance of the company?

•

What extra help do you need to do your job more effectively?

•

What tasks could be eliminated altogether or made simpler and more effective?

•

What is not being done that needs doing urgently?

Managers are often able to highlight a key problem area or opportunity in another department of the company while not being able to see scope for improvement in their own job. The turnaround executive needs to be a good listener who neither takes sides nor apportions blame.

Start with the sales team Even in a high-technology company there is the strongest case for trying to understand the fundamental problems facing the business by examining the sales activity first. Almost by definition, a loss-making company cannot claim to be sufficiently customer and market-oriented. Ideally, every sales employee should regard their job as helping to provide outstanding service to present customers and anticipating the future needs of both established and potential customers. In working to achieve this state of affairs, there is no effective substitute for making field visits with sales staff, visiting agents and distributors, calling upon important customers, potential customers and even important established users of competitive products. Board meetings are unlikely to provide an adequate insight into the sales and marketing issues facing the business. Two weeks spent in the field represent an excellent investment of the turnaround executive’s time at this stage. In this way, first-hand information can be obtained about the product quality, service and delivery performance. Price competitive-

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ness, the benefits offered by competitive products, the effectiveness of sales and distribution networks will begin to be understood as well. Attention should next be focused on the sales office and sales support services. The time already spent in the field will prove invaluable in asking the relevant questions about the effectiveness of sales support. A good starting point is to check how effectively action is taken on emails and telephone calls from customers. Operating standards are vital. Enquiries and orders should be acknowledged the same day. Complaints and requests for after-sales service require particularly prompt attention. It is essential to notify the customer of the action being taken without delay. General emails, too, should be handled promptly. When a telephone query cannot be dealt with on the spot, a promise should be made to call back by a given time, and that promise must be honoured. Clearly the effective handling of emails and telephone calls is not a panacea for the sales ills confronting a business. The attitude of mind that creates this type of effectiveness, however, is a prerequisite for what needs to be achieved in the coming weeks and months. The turnaround executive will then want to evaluate other important aspects of the sales operation. At this stage, the executive’s previous management experience and newly-gained knowledge of the present business will indicate which aspects require attention. Aspects to evaluate may include: •

The existence of adequate targets, incentives, operating standards, training and supervision for the sales force.

•

The liaison between the sales and production departments to ensure that the various customer demands and priorities are met in a costeffective way.

•

The finished goods stocking policy used to ensure a balance between meeting customer orders from stock and the attendant cost of holding the inventory to achieve this goal.

•

The acceptance of orders for custom-made products as opposed to standard ones, and the basis for assessing the costs involved and the price to be charged.

•

The responsibility and basis for offering one-off, cut-price or discount deals to customers or clients.

•

The extent to which the sales people participate in helping to collect overdue accounts from customers.

•

The need to make the maximum use of information technology to help the sales force improve the service to customers and clients.


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This is an intentionally simple approach, based on finding out exactly what happens rather than installing sophisticated management systems and controls. Successful turnarounds are usually initiated by executive action ensuring that a few simple but important things are done outstandingly well. Installing some basic management controls should wait until this first stage in recovery has been effected. It may appear somewhat illogical to investigate the sales activity before tackling the broader issues of the market place and marketing; the reason for this is pragmatic. Even a sketchy knowledge of the sales effort, problems and opportunities will lend considerable perspective to an understanding of the marketing challenge facing the business. Important marketing aspects to be looked at include: •

Any major products or services in the research and development stage for which there should be a clear-cut work programme through to product launch with an attendant expense budget.

•

Business development, including efforts to identify and pursue new products, services, territories, market segments and distribution channels.

•

The effectiveness of sales promotion, advertising and exhibition expenditure.

•

The liaison between marketing and R&D to ensure that research projects are based on market-oriented assessment of customer needs and provisional product specifications.

•

The extent, relevance and value of market research activity and data within the company as a basis for future business development.

•

The possible need for a reduction in the range of products/models and services offered to the customers to ensure compatibility between market needs and the cost-effective use of production resources.

Scrutinize overhead and administration costs In the USA ‘burden’ is a word widely used for those costs. For a turnaround situation, the word ‘burden’ is truly appropriate. Overhead and administrative costs must be affordable, given the likely sales volume and gross margin in the next year or so.

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The chief executive should have value analysis concepts very much in mind. He or she will be asking themselves, and others, the reason for each administrative activity, using the following type of questions: •

Is the work necessary to meet statutory, legal or fiscal requirements?

•

If not, what detriment would there be to the business in either the short or long-term if the particular task or department was eliminated?

•

If the work still appears necessary, who benefits internally, and is the existing service the most cost-effective and relevant approach?

•

Are any administrative departments overstaffed or staffed to meet a peak demand?

•

Is there any administrative work not being done which would represent both a tangible benefit and a net overall saving to the business?

•

Are costs higher than necessary as a result of using expensive contract staff?

•

Could any services or departments be outsourced partially or completely, to reduce costs without damaging the business later?

•

Is maximum and cost-effective use being made of information technology such as recent developments in data storage and transmission, direct input and email?

•

How can the number and layers of management be pruned without the business suffering?

At the end of this learning period the chief executive should have got across the message to the team that empire building and status symbols are out. The order of the day is to provide a service which is relevant and represents value for money.

Tackle production and procurement costs… and opportunities In the same way that time was spent in the field in order to appreciate quickly the sales and marketing problems, it is necessary to spend time in production departments and warehouses to begin to understand the production challenge facing the business. Good housekeeping is important. It is not just a question of tidiness. If management and workforce alike do not take pride in their surroundings and adopt high standards, they are unlikely to take pride in the quality of the products and services supplied to customers.


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On the very first visit to each location the chief executive should not hesitate to point out any lack of good housekeeping and to expect rapid action to improve the situation. Once again the premise is that major improvement throughout the production process needs a basic change of attitude at the outset. The turnaround executive will constantly be asking fundamental questions: Why? How? What? The specific questions may include: •

What are the major constraints holding back increased output and productivity, quicker and more reliable delivery performance, better product or service quality and reliability, and reduced inventory levels?

•

How can we overcome these constraints in the most effective and inexpensive way in the shortest time possible?

•

What should be done to improve the working conditions, motivation and morale of the workforce? How much will this cost? What other savings can be achieved to pay for it?

Set relevant short-term forecasts and objectives Actual performance, measured in terms of sales, gross margin and pre-tax profit, may be so far removed from the current year budget that new forecasts are required. The approach should be to ask directors to produce month by month forecasts for the remainder of the year for: •

sales, ideally made up by product or service category

•

gross margin percentage

•

overhead costs

The chief executive should challenge the thinking behind these forecasts and then make any amendments he or she feels necessary. This is not my recommended approach to budgeting, but the early days of a turnaround demand special measures. A vital rough and ready calculation of a monthly break-even sales figure should be calculated and communicated to the team.

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The arithmetic is very simple: If monthly overheads are, say, £150,000 and the gross margin is, say, 30% then: Monthly overheads

÷

Gross margin percentage Break-even monthly sales

£150,000 30%

=

£500,000

This enables the chief executive to agree with the directors in which month breakeven will be achieved and to get their collective commitment to achieve this vital goal on time.

Financial planning and control need clear priorities Accurate and prompt financial planning and control are essential. The company may have a relevant and sophisticated, integrated IT system, but the old adage of ‘garbage in delivers garbage out’ applies particularly to a turnaround situation. Accurate monthly accounts demand accurate and prompt input from every department. The reality may be sloppiness. Ideally, the new chief executive would have an experienced turnaround financial manager from the outset. If this is not feasible, then the chief executive has to spell out what is needed to the present incumbent. Not just the chief executive but the financial manager must listen to, talk and sell to the management team what is required. It really does require financial management by walking about.

Create a budget for the new financial year The preparation of a budget for the coming financial year offers an opportunity to pursue further the installation of effective short-term management within the business. The management team has by this time had the experience of making a commitment of a forecast for the current financial year and delivering that commitment.


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The finance staff will have been directed about the scope, methods and format required for financial planning, control and forecasting in the coming year and will be ready to implement this, starting with the preparation of the annual budget. Each member of the management team will be expected to back his or her budget commitment with a quantified management action programme and a statement of the key milestones to be achieved on business development projects. This will ensure that there is a balance between the amount of executive time spent on day-to-day management problems and that invested in pursuing projects to achieve further profitable growth. The chief executive must spell out that the directors have collective cabinet accountability to achieve both the pre-tax profit and cash flow generation monthby-month and annually. Reasons for a shortfall must be accompanied by action to get the full year performance back on track.

Examine research and development There is a strong temptation for the turnaround executive to avoid getting to grips with the R&D activity because of a lack of technical expertise. The temptation must be resisted at all costs. It is perfectly admissible to admit to ignorance of the technology involved, provided that the executive demonstrates a willingness to appreciate the problems of and to take a lively interest in the work of the department. This approach will almost certainly enhance the respect that hopefully he or she has already earned. Questions to ask in the R&D department may include: •

Who initiated each R&D project currently in progress?

•

What budget and programme exists for each project? How does actual performance compare with the original budget and programme?

•

What financial return is expected from each project. What market research data is this based on? What product specification and price profile has been agreed with marketing and defined as the objective?

•

What existing projects should be examined with a view to termination?

•

What new projects should be initiated? For what reason?

•

How can information technology be used more widely and effectively to increase the productivity of R&D staff?

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•

How can the Internet be used as a research tool to spur innovation and to provide a valuable information resource?

•

What is the allocation of R&D resources between basic research, new product R&D and the improvement of existing products? Does this allocation meet the future market opportunities and competitive challenges facing the business?

•

What is the current level of sales and marginal profit contribution derived from products emanating from in-house R&D?

•

What R&D work is outsourced or sub-contracted to other organizations? Which projects or specific tasks should be outsourced or subcontracted in future?

Address the medium-term future for the business The chief executive must not see the extent of the turnaround role as being the elimination of losses. That is only the first step – and often the easier one. The second stage is to achieve an acceptable return on the funds invested, or to dispose of the business as a going concern. If the requirement for achieving a turnaround has resulted from long-term changes in the market place in which the company operates, then it will almost certainly be necessary to re-position the business. This involves a planned withdrawal from unprofitable products, services, market segments and territories, and developing or acquiring alternative business which offers adequate profitability and future growth. The re-positioning of the business can take place in several ways. For example, the company could decide to look for future growth throughout, say, Europe; or it could concentrate on developing a higher quality, higher priced product range; or it could develop its ability to sell custom-made products profitably. A further option may be diversification to an extent which requires either a joint venture or an acquisition. While the turnaround executive may discuss ideas on the subject with other managers, and may well invite their suggestions, the responsibility for decision rests squarely on his or her shoulders alone. In the end, the conclusion may be that the business should be sold as a going concern to another company better placed to make an acceptable return from


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the funds invested. If so, the turnaround executive must have the courage to present the facts to the board for approval. It must not be seen as a statement of failure. In the final analysis, the management of opportunity is more rewarding than the management of problems, from the standpoint of shareholders, managers and employees alike. Once approval for disposal is given, then the turnaround executive should expect to be actively involved, and probably personally accountable, for identifying prospective purchasers and successfully negotiating the sale of the business in conjunction with specialist advisers. Throughout all this there will be uncertainty, anxiety and fear felt by workforce and management alike. The turnaround executive must learn to cope effectively and be a person of integrity with outstanding management skills and, above all, the ability to communicate. It is important that he or she should appear cheerful, assured and poised at all times. If there are signs of despondency or being out of one’s depth, the effect on morale may be shattering. Both management and workforce will look to the turnaround executive for confidence and reassurance. The executive’s approach should be like that of the dentist who, at the outset, describes to the nervous patient the nature of the treatment he or she is about to receive and then explains each step. Two other aspects of communication are important: making promises and dealing with rumours. From the very start the turnaround executive must not make any promises which are either beyond his or her control or beyond present horizons. It is not unusual to be asked on the first day if an assurance can be given that there will be neither redundancy nor office relocation within, say, the next six months. At this stage, the turnaround executive is not able to give such an undertaking. The other feature of a turnaround situation is the proliferation of rumours from top to bottom of the organization. Rumours must be flushed out into the open as quickly as possible, and an appropriate statement made by management. Rumours left undealt with merely fuel the anxiety which already exists. In conclusion, it can be said that every turnaround situation presents a unique set of problems. There are no ready-made answers. The outcome of a successful turnaround is defined as achieving an adequate return on the total funds invested in the business, and not simply as the elimination of loses. The methods outlined for handling the situation successfully are based on taking effective executive action initially, rather than concentrating on improved management control systems and procedures. The key to success is to concentrate on doing a few simple but important tasks outstandingly well, and to communicate confidence and reassurance to managers and staff throughout the business.

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Make redundancies urgently and humanely I have deliberately left the most powerful issue to last. Neither managers nor employees will be grateful to you for delaying the inevitable need for redundancies. They will recognize the situation and there will be a ‘sigh of relief’ when the redundancies are announced. A piecemeal approach to reducing the workforce has a devastating effect on morale. Nevertheless, if the situation was sufficiently serious to warrant earlier redundancies, then no doubt they would have happened. Consideration should be given to making use of temporary staff, short fixedterm contracts for staff and outsourcing as part of a review of current staffing levels. Each member of the management team should be asked to produce a list of people either to be made redundant or transferred internally. The information required in addition to the names of the people affected is their job title, length of service, annual income, notice period and the cost of termination. This part of handling a turnaround situation is undoubtedly the most unpleasant aspect of the job. The executive reluctantly responsible for this task must do the utmost to ensure that people are treated fairly, and as generously and compassionately as possible. Failure to recognize the need for a reduction can only result in putting the jobs of everyone in the business at risk. One thing the chief executive must ensure is that the scheme to reduce the number of staff covers the entire business, from workforce through to senior management; otherwise a top-heavy organization may well result. Clearly, however, to meet the future needs of the company some departments will need to suffer heavier cutbacks than others. The next aspect to be stressed is confidentiality and security. If anyone other than the turnaround executive’s secretary does the word processing and copying, the information might as well be put on the company notice board. Detailed planning should be carried out to arrange for all severances to be notified and executed at the same time, so that uncertainty and anxiety among the remaining personnel can be kept to a minimum. Equally important, appropriate notification should be given to staff unions and government departments in accordance with the highest standards of custom and practice of the particular country.


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Chapter 9 Utilize expert streetwise tactics Discuss the structure and form of consideration before making a written offer Realize that too low an initial offer may lose the deal Reveal any onerous conditions early to reduce their impact Spell out and sell your management approach Recognize that your conduct prior to completion is crucial When negotiating the final deal it is unlikely that the vendors can justify a higher offer Criticizing the business to the owners must be avoided Quid pros quos are an effective way for win-win negotiation When no agreement is reached, keep the door open


Chapter 9 Utilize expert streetwise tactics The tactics you adopt and your personal conduct are likely to determine whether or not you successfully legally complete an acquisition. The level of your offer alone, unless it is overgenerous, does not ensure you will succeed. To acquire a company you have to sell: •

yourself – as a trustworthy, reliable and friendly person to do business with

•

your company, management style and post-acquisition management approach

•

your offer – which meets the particular needs of the vendors even though it may not be the highest offer

Discuss the structure and form of consideration before making a written offer If you decide to make a written offer without discussing the level of your offer, structure and form of consideration, you are shooting in the dark and may well miss your target, without a second chance to succeed. At this stage, it is worth outlining the total value of your offer as a range in order to give you room for manoeuvre. As well as listening to what the vendors say in response, do watch their eyes, facial expression and body language. Nonverbal responses are likely to be more honest! If you are insistent on an earn-out deal, where the deferred purchase consideration is contingent on achieving profit targets, typically over the next two financial years, do make it clear that this is a must for you. At this stage I advise against using the words ‘it is a deal breaker issue’ because it may prompt an angry and emotional response. Outline the amount of purchase consideration you will pay at legal completion, which should reflect reasonably – but not overgenerously – the value of the company today. Sell the earn-out consideration as an opportunity for the vendors to be paid for future success and necessary protection for you against identified vulnerabilities.

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9 U T I L I Z E E X P E R T S T R E E T W I S E TA C T I C S

Some acquirers fail to realize that the form of purchase consideration can be a deal breaker issue for some vendors. For example, a £40M market capitalization AIM listed company may insist that 50% of the purchase consideration is payable in their shares. Also, there may be an embargo preventing the vendors from selling any shares for one or two years. The acquirer will need to be really persuasive to sell this structure. Some private companies seeking to acquire may offer 50% of the purchase consideration in the form of an interest bearing loan note, with the capital repayable in three annual instalments. If it is a bank guaranteed loan note or an insurance bond there is adequate security, but a guarantee only by the acquirer leaves the vendors potentially vulnerable. Once again, real persuasion will be needed. Based on these discussions, you are much better placed to formulate an offer with a decent chance of acceptance. But go one step further, within 24 hours of the receipt of your offer, telephone the vendors to clarify and discuss any queries they have.

Realize that too low an initial offer may lose the deal This is best illustrated by an actual sale where I advised the vendors. The company was an attractive opportunity and prospective acquirers were told, before making an offer, that there were five serious acquirers ready to bid. Four offers we received in the £12M to £14.5M range, and a Footsie 100 company offered £8.5M. They were invited to submit a significantly improved offer, but declined despite the fact that they had most to gain from the acquisition. The business was sold for £15.5M, and about three months later I met the £8.5M bidder at a seminar. He told me that he had authorization to bid up to £20M, but was convinced I was bluffing and he could impress his boss by pulling off a cracking deal. To compound matters, he said I would have happily paid up to £20M. I leave you to form your own judgment on his tactics.


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Reveal any onerous conditions early to reduce their impact What is onerous rests in the opinion of the vendors. For example, shortly after shaking hands on a written offer I told the vendor that his 26 year old son would have to give up his job as Marketing and Sales Director. The business employed over 1,000 staff and 60% plus of sales were overseas, and the son was simply far too inexperienced and a playboy to boot. The vendor literally erupted with anger. I never said a word until the emotional outburst had subsided. Half an hour later, he agreed and with good grace. It was a deal breaker issue, but left until immediately prior to legal completion or shortly afterwards, the vendor could justifiably regard the requirement as an act of bad faith and be left pondering what other nasty surprises would be revealed.

Spell out and sell your management approach Vendors worry about lots of things, and an astute acquirer will find out what these are and address them. Typical examples are: •

job titles

•

reporting relationships with the acquirer

•

cheque signing authority

Of more substance, however, is the management approach you will adopt postacquisition. An effective way to sell this is to introduce the vendors to the owners of a business you have acquired during the past two years and allow them to meet without any group people present. The concerns of vendors often centre on procedures such as: •

annual budgeting

•

monthly reporting and updated year end forecasts

•

capital expenditure appraisal

•

attendance at formal board meetings

•

interference by group executives

Your job is to promise help and give reassurance, stressing that it is vitally important that you maintain the entrepreneurial flair of the business within a group framework.

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9 U T I L I Z E E X P E R T S T R E E T W I S E TA C T I C S

Recognize that your conduct prior to completion is crucial At worst, an overly aggressive approach may lose you the deal because the vendors decide not to do business with you. It does happen, I promise you. More likely, however, you may find that post-acquisition management is more difficult because an effective rapport has not been established. Deal breaker issues should be kept to an absolute minimum, probably not more than two or three, if you are to succeed. Threats, ultimatums and unrealistic deadlines do happen and provoke a predictable response from the vendors. Your goal must be to have established a first class rapport with the vendors and have agreed post acquisition plans prior to legal completion so that the deal gets off to a flying start.

When negotiating the final deal it is unlikely that the vendors can justify a higher offer The reason is simple. Vendors are keen to reveal all of the potential opportunities before you value the company and make your offer. So it is unlikely there is adequate reason for you to increase your offer. I really do believe that any increase should be modest and made in exchange for something which is valuable for you.

Criticizing the business to the owners must be avoided This is a cardinal sin! You cannot gain from these tactics, and are likely to alienate the vendors. Yet some acquirers use this tactic to justify not increasing their offer. The positive way is to express your justifiable concerns about some of the vulnerabilities the business faces.


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Quid pros quos are an effective way for win-win negotiation You should regard any increase to your written offer as a ‘give away’ without any justification to do so, unless you get something in return which is at least equally valuable to you. Please do not dismiss this approach as simply playing with words. It is not! Be prepared to ask the vendors what they are prepared to offer you in return for an increase or concession from you. Their answer may surprise you and more than fully justify your action. If they do not come up with any attractive suggestions, be ready to put ideas to them.

When no agreement is reached, keep the door open Where you have made an unsolicited approach to acquire and your offer is rejected, you should maintain regular contact at, say, quarterly intervals. Agree to meet for lunch, attend a trade dinner together or extend an invitation to a corporate hospitality event. Vendor circumstances may and do change suddenly and abruptly. The discovery of a terminal illness or a major family disagreement are just two examples. Another situation is where your offer is rejected and the vendors sign Heads of Agreement and give a period of exclusivity to another acquirer. A surprising number of deals fail to complete at this stage. Reasons include unsatisfactory due diligence causing the acquirer to withdraw or reduce their offer; deal breaker issues which could not be resolved and a failure by the acquirer to finance the deal or to offer adequate security for deferred consideration. Make it clear to the vendors that your door is still open if problems arise. If they do come back to you, the reasons given for non-completion may be less than truthful. Your negotiating position is now dramatically stronger. Be ready to forget your previous offer. Get the vendors to update you on current trading and be prepared to make a lower offer. Failure to legally complete after Heads of Agreement comes as a bitter blow to most vendors. It is understandable that they are hugely disappointed and may well be prepared to accept a lower offer. Seize the opportunity!

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Chapter 10 Choose and appoint advisers with care Identify the help and advice you need and want Recognize the advice and help which is available Create an effective beauty parade to select advisers Always agree fees and negotiate the engagement letter before appointment Telephone references on individual advisers really are valuable Ensure advisers keep you informed of progress


Chapter 10 Choose and appoint advisers with care My golden rule is that an adviser must never be allowed to learn at your expense! Sadly, some advisers are all too willing to do just that. So always make sure that the lead adviser has relevant expertise and experience.

Identify the help and advice you need and want The first step is to recognize the work which should be done in-house: •

formulate your acquisition strategy based upon your corporate goals

•

translate your acquisition strategy into an acquisition profile to focus your search

Whether or not you can do the remainder of the work in-house depends upon the people you can make available with the expertise and experience needed. Acquisition work is often seen as exciting by internal people and you must make sure that they do not learn at your expense or that important day-to-day work suffers. The other stages involved include:

Carry out an acquisition search In the UK this can be done in-house by a suitable commercial person with some sector knowledge. Overseas, the only real way to carry out an effective search is by using someone based in the country to make initial contact with target companies. A UK search can be done in-house but it requires the managing director to be involved. The most effective way is to telephone the decision-maker within a target company and to extend an invitation to lunch to discuss mutual opportunities. Towards the end of the lunch, you can mention that you have always respected the target company and whenever a sale is to be considered you would be interested.

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10 CHOOSE AND APPOINT ADVISERS WITH CARE

It is time consuming for the managing director because ten approaches, and ten lunches, may be needed to find a relevant opportunity. In contrast, a corporate finance adviser can telephone the decision-maker on behalf of a client, un-named if necessary, to explore an acquisition with the promise that the client will be named at a first meeting. Curiosity plays a part and the prospective vendors may be prepared to meet the adviser.

Meet the vendors to obtain a picture of the business If both sides agree to progress matters, the next step is for the managing director to persuade the vendors to spend half a day exchanging information so that a written offer can be made. I passionately believe that unless the prospective acquirer is able to handle this information gathering meeting, and does so, they are not equipped to make an acquisition! The information gained from this meeting should be used to decide: •

whether or not to make an offer

•

the level of the offer

•

the deal structure proposed

Meet the vendors to discuss your offer If you intend to use corporate finance advisers, they should be involved at this stage to: •

review and challenge the level of the offer you intend to make

•

provide advice on an earn-out deal structure

•

act as a buffer between you and the vendors

•

and continue to be involved to legal completion

Formulate the written offer This requires a background knowledge of relevant company law, taxation, stamp duty and VAT implications. Earn-out deals are a potential minefield for any acquirer, and it is essential that the formulation of the offer is done by someone with ample experience


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Negotiate the Heads of Agreement Once again, a corporate finance adviser can act as a buffer and ensure that the Heads of Agreement are technically sound regarding company law, taxation, stamp duty and VAT. If a corporate finance adviser is involved, there is no need whatsoever to involve a solicitor at this stage.

Carry out due diligence Due diligence costs have to be paid even if the deal is aborted at the last minute, but I regard it as valuable protection for the acquirer. Unless you have in-house specialists regularly involved in due diligence, outside advisers should be used.

Handle the legal work Unless you have in-house solicitors handling your acquisition and disposal work, I regard it as essential to use a firm of solicitors with at least one partner handling acquisitions and disposals on a full-time basis.

Recognize the advice and help which is available The types of advice you may need are: •

acquisition search and initial contact with vendors

•

corporate finance

•

due diligence

•

legal

Major accountancy firms may well offer you a one-stop shop for all the advice you require, but be wary! In recent years, specialist advisers have emerged to handle the initial search and contact with prospective vendors, as well as commercial due diligence. Make sure you meet at least one of these firms as your prospective adviser. Corporate finance advice is available from both major and medium-sized accountancy firms, as well as from independent corporate finance boutiques.

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Accountancy firms regard due diligence as their domain. But they may not be equipped to handle everything which is involved. Commercial due diligence involves much more than bringing a commercial awareness to financial due diligence. Environmental and pensions due diligence demand expert advice. Legal work should be handled by a firm of solicitors of a suitable size whereby the transaction will be handled personally by a partner. If you go to a major multinational law firm you may pay considerably more and have the work done overwhelmingly by a manager. I would like to believe in the effectiveness of Chinese walls, but struggle to do so. You will be assured that a firm offering both corporate finance advice and due diligence, will not be compromised by the need for you to risk the deal by renegotiation as a result of due diligence findings. A one-stop approach does create potential conflicts.

Create an effective beauty parade to select advisers I believe that a beauty parade should involve no more than three of four prospective advisers for each type of advice. Firstly, identify suitable firms to select. The tried and trusted method of asking business acquaintances for suggestions is an obvious starting point. Trade press magazines may contain articles or case studies written by advisers, and news of completed deals may name the advisers involved. Internet search and reading websites is another source. If you are unsure which individual to contact, telephone the personal assistant to the senior partner and ask who is the relevant partner to handle the size, complexity and business sector of your deal. When you speak to the person, outline your needs and the agenda you wish to address when you meet. At the meeting, questions to be asked of any professional adviser include: •

What transactions of similar size and complexity have you personally completed in this market sector or a similar one?

•

Which transactions have you personally completed in the last 12 months and what were the deal values?


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A crucial piece of information to obtain is an indication of the likely fee, and the basis for charging. Due diligence will inevitably be a fixed fee regardless of whether or not you legally complete a deal. Acquisition search and initial contact with target companies should be carried out for a fixed fee, which does not deliver any profit to the adviser, and a percentage scale fee for a legally completed deal. Corporate finance advice should be charged for work done up to a set limit and a fixed success fee payable only on legal completion. Disbursements payable should cover only out-of-pocket expenses up to a given limit. It may be wrong to select the lowest fee quoted, but you can use this as a negotiating tool with your preferred adviser. Lawyers should be asked to give a budgetary fee estimate, based on the deal as described, which will only be increased if they can demonstrate that the actual complexity involved requires more work. Also, it may be possible to negotiate a maximum fee for work done and a reasonable success fee payable only at legal completion. When meeting prospective advisers, do obtain a copy of their standard letter of engagement because some contain onerous clauses stacked heavily in favour of the adviser.

Always agree fees and negotiate the engagement letter before appointment This may seem patronizing nonsense! Of course, everyone would always do this – but they don’t. Clients treat solicitors with undue respect, to the point that they do not even raise the subject of fees. This is nonsense. A solicitor will respect you much more if you talk openly about fees at the first meeting and are ready to negotiate. Major accountancy firms often have onerous letters of engagement. Recently, one accountancy firm told a prospective client that work should commence and the engagement letter could be agreed later. What nonsense! No less than 17 amendments were made prior to their appointment, albeit reluctantly on their part.

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Telephone references on individual advisers really are valuable Questions to be asked of the lead adviser should include: •

May I have the name, job title and telephone number of three clients for whom you have completed deals, if I decide in principle to appoint you?

•

Will you be present at every meeting I wish you to be?

•

What will happen if you are on holiday or ill?

•

Who else will be in your team and what is their role?

•

What is your fee proposal?

Questions to be asked of previous clients include: •

Did the adviser personally lead the team for you and attend meetings when you felt it appropriate?

•

Did you get an outstanding deal, first class service and value for money?

•

What things annoyed or irritated you?

•

Would you unhesitatingly appoint the adviser again?

•

How should I get the best out of the adviser?

•

How enjoyable was it to work with the adviser?

Chemistry and style are truly important and this will become apparent during long, tedious and contentious negotiation meetings.

Ensure advisers keep you informed of progress Too many advisers simply fail to keep you informed of progress or the lack of it. This is simply not good enough. Ask each lead adviser to telephone or email you weekly. The old adage of no news is good news does not apply to successful business acquisitions! In particular, the momentum needs to be maintained between signing Heads of Agreement and legal completion. Make sure either your lead corporate finance adviser or a senior in-house executive steers the deal safely to legal completion.


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I conclude with a sobering thought, you will not know whether your acquisition is a success until one or two years after legal completion, and I wish you every success.

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Other specially commissioned reports from Thorogood BUSINESS AND COMMERCIAL LAW Commercial Contracts: Drafting techniques and precedents Ribeiro, Robert

Email: Legal issues Singleton, Susan £169

ISBN: 978-185418271-5

This report takes you through the drafting process giving practical guidance from start to finish. With up-to-the-minute information on key cases and materials and in-depth analysis of the important drafting issues, it is a must for all those who need to draft commercial contracts.

Commercial Litigation: Damages and other remedies for breach of contract Ribeiro, Robert

£169

ISBN: 978-185418397-2

A great deal has changed in the last few years... a new emphasis on claims for damages such as loss of business, opportunity, chance, use and data and recent landmark cases have altered the ground-rules. Completely updated, this report includes accounts of all the most recent important cases and highlights significant changes in the way that the courts now assess damages.

£80

ISBN: 978-185418256-0

What are the chances of either you or your employees breaking the law? This report explains clearly: • How to establish a sensible policy and whether or not you are entitled to insist on it as binding • The degree to which you may lawfully monitor your employees’ e-mail and Internet use • The implications of the Regulation of Investigatory Powers Act 2000 and the Electronic Communications Act 2000 • How the Data Protection Act 1998 affects the degree to which you can monitor your staff • What you need to watch for in the Human Rights Act 1998 and TUC guidelines.

Freedom of Information Act Singleton, Susan

£95

ISBN: 978-185418347-7

The FOI Act gives companies and individuals important powers to request information from public bodies. Are you equipped to take advantage and to protect yourself?

Corporate Governance Martin, David

£85

International Commercial Agreements

ISBN: 978-185418354-5

Attree, Rebecca

This report is a clear, accessible and jargon-free analysis of the practical application of Corporate Governance. With short case studies to illustrate legal requirements, the author guides the reader through all aspects of the Corporate Governance programme, concentrating specifically on its use by organisations who are not required to adopt it, such as listed PLCs.

ISBN: 978-185418286-9

For full details of any title, and to view sample extracts, please visit:

www.thorogoodpublishing.co.uk

£95

A major report on recent changes to the law and their commercial implications and possibilities. The report explains the principles and techniques of successful international negotiation and provides a valuable insight into the commercial points to be considered as a result of the laws relating to: pre-contract, private international law, resolving disputes (including alternative methods, such as mediation), competition law, drafting common clauses and contracting electronically. It also examines in more detail certain specific international commercial agreements, namely agency and distribution and licensing.

Insights into Successfully Managing the In-house Legal Function O’Meara, Barry

Intellectual Property Protection and Enforcement £95

Brazell, Lorna

£159

ISBN: 978-185418174-9

ISBN: 978-185418054-4

Negotiating the fault-line between private practice and in-house employment can be tricky, as the scope for conflicts of interests is greatly increased. Insights into successfully managing the in-house legal function discusses these and other issues.

Incorporating the latest developments in IP law, this report reviews each of the principal forms of intellectual property right available in the United Kingdom, describing the nature of the right itself and explaining: How rights arise or can be obtained, How rights can be exploited, What is necessary to protect rights from erosion or loss, What actions will constitute infringement of a right, under either civil (enforced by the owner) or criminal (enforced by public authorities) law, What remedies are available to the owner of the right, once infringement has been proved.

Software Contract Agreements Bond, Robert

£80

ISBN: 978-185418146-6

Fully up-to-date with all changes to the law, this report is a thorough explanation of the law combined with expert guidance on negotiating and drafting the best contract for your client.

Achieving Business Excellence, Quality and Performance Improvement Chapman, Colin & Hopper, Dennis

£95

ISBN: 978-185418018-6

Each chapter can be read on its own for convenient reference, and the introduction to each chapter also makes it clear where awareness of another section may be useful.

Waste Management: The changing legislative climate Hand, Caroline

This valuable report identifies all the areas critical to developing an effective performance improvement process. It is a practical guide to the use of business excellence models and frameworks, quality standards, benchmarking tools, self-assessment programmes and the latest performance improvement initiatives.

ISBN: 978-185418367-5

This valuable report explains what all the new legislation, directives and regulations mean in practice and what you need to do to stay within the law. Recent far-reaching changes to the law and practice affect everyone – commerce and industry, central and local government and householders.

The Commercial Exploitation of Intellectual Property Rights by Licensing

Websites and the Law

DesForges, Charles

Singleton, Susan

£95

£80

£80

ISBN: 978-185418285-2

ISBN: 978-185418331-6

This report will show you – whether as licensor or licensee – how to identify and secure profitable opportunities, strategies and techniques for negotiating the best agreement, and finally the techniques of successfully managing a license operation.

Is your company/client website legal? Do you know what information you are required by law to put on it? What can you do with people’s personal data sent to your website? This report deals with all the practical legal issues which arise with websites – both those sites which sell goods or services and those which advertise.

HOW TO ORDER Email: [email protected]

Please see order form at the back of this report

Telephone: +44 (0)1235 465 500

Post: Marston Book Services, PO Box 269 Abingdon, Oxon OX14 4YN

Fax: +44 (0)1235 465 556

Web: www.thorogoodpublishing.co.uk

BUSINESS STRATEGY AND MANAGEMENT A Practical Guide to Knowledge Management Brelade, Sue & Harman, Chris

Understanding SMART Procurement in the MOD £99

Boyce, Tim

£69

ISBN: 978-185418230-2

ISBN: 978-185418164-0

An expert but jargon-free guide to enable you to manage the knowledge in your organisation successfully and to identify, gather and use that knowledge to maximum advantage.

The main thrust of this report is on issues to do with strategy, organisation and processes. The single most encouraging and exciting feature of the SMART procurement initiative is that it embraces the need to change the culture. There is a commitment within the high political echelon of the MoD to make this change happen. Probably the greatest single challenge is to ensure that this commitment is maintained through the inevitable changes of personality at the political and senior management level.

Analyse your Business – A performance health check O’Connor, Carol

£89

ISBN: 978-185418170-1

This briefing offers the tools and techniques for company-wide analysis and is essential reading for business leaders responsible for corporate performance. Its purpose is to put minor issues into perspective and discourage the use of quick fix solutions for bigger problems.

Tendering & Negotiating MoD Contracts Boyce, Tim

£95

ISBN: 978-185418276-0

This report aims to draw out the main principles, processes and procedures involved in tendering and negotiating MoD contracts. As Tim Boyce writes in the Introduction, ‘it is important to realise that the SPI embraces a conceptual shift in the role of the MoD procurers’. What does this ‘huge shift in thinking’ mean for contractors? How exactly has the role of MoD purchasing changed? This report covers every aspect of competitive tendering, negotiation and contractual negotiations in this new era. There can be few people who combine Tim Boyce’s experience and expertise with a gift for explaining issues and procedures with such clarity.

IT Governance Norfolk, David

£169

ISBN: 978-185418371-2

This specially commissioned report sets out what the latest legislation says and what it means, its impact on the organisation as a whole and on the IT group specifically, and how to implement an effective IT governance initiative in your company.

Practical Techniques for Effective Project Investment Appraisal Tiffin, Ralph

£99

ISBN: 978-185418099-5

How to ensure you have a reliable system in place. Spending money on projects automatically necessitates an effective appraisal system – a way of deciding whether the correct decisions on investment have been made.

Project Risk Management: The commercial dimension Boyce, Tim

£95

ISBN: 978-185418257-9



This report will show you how to fully appreciate all the commercial dimensions of important projects and understand how to identify all the risks during the pre-contract bidding phase.

Strategy Implementation Through Project Management

Surviving a Corporate Crisis: 100 things you need to know

Grundy, Tony

£99

Batchelor, Paul

£80

ISBN: 978-185418250-0

ISBN: 978-185418208-1

The gap: Far too few managers know how to apply project management techniques to their strategic planning. The result is often strategy that is poorly thought out and executed.

Seven out of ten organisations that experience a corporate crisis go out of business within 18 months. This report not only covers remedial action after the event but offers expert advice on preparing every department and every key player of the organisation so that, should a crisis occur, damage of every kind is limited as far as possible.

The answer: Strategic project management is a new and powerful process designed to manage complex projects by combining traditional business analysis with project management techniques.

Technical Aspects of Business Leases: Overcoming the practical difficulties Dowden, Malcolm

THE THOROGOOD PROMISE

£95

ISBN: 978-185418194-7

If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt, we will refund the cost of the publication, no questions asked.

The purpose of this report is to highlight areas where technical issues might lead to practical difficulties, and to give clear guidance to help those involved in property management avoid the pitfalls.

FINANCE Tax Planning for Businesses and their Owners Hughes, Peter

Trade Secrets of Successfully Acquiring Unquoted Companies £95

Pearson, Barrie

£145

ISBN: 978-185418334-7

ISBN: 978-185418366-8

Written for business owners and managers, this special briefing offers expert advice on the tax implications of your business decisions – guiding you in making the right business and personal choices for tax reduction.

In this invaluable new briefing one of the City’s most successful deal-makers distils 40 years’ experience as both principal and advisor. “Losing a deal by adopting the wrong tactics is unforgiveable” he writes, but it happens all too often. This briefing offers both professional advisors and principals the opportunity to transform their rate of success, clarifying hard truths and highlighting avoidable mistakes. It is laced throughout with proven tactical advice to ensure that both deals and post-acquisition management are carried out with maximum success.

Trade Secrets of Business Disposals Pearson, Barrie

£145

ISBN: 978-185418321-7

If you’re like most people, you’ll only get one chance to sell your business and to capitalise on years of hard work and planning. You can either fluff it, or make sure you get the best possible advisor and become financially secure for life, and possibly very rich. This report shows you how to make your business ‘investor-ready’ for maximum capital return.

VAT Liability and the Implications of Commercial Property Transactions Buss, Tim

£149

ISBN: 978-185418307-1

The option to tax is a major VAT planning tool but you have got to get the detail right to take full advantage – and getting it wrong can be very costly. This report shows you how to plan for maximum advantage and avoid costly mistakes.

EMPLOYMENT LAW Data Protection Law for Employers Singleton, Susan

THE THOROGOOD PROMISE £80


ISBN: 978-185418283-8

The four-part Code of Practice under the Data Protection Act 1998 on employment and data protection places a further burden of responsibility on employers and their advisers. The Data Protection Act also applies to manual data, not just computer data, and a tough enforcement policy was announced in October 2002.

Howard, Gillian

Discrimination Law and Employment Issues Martin, David

£95

ISBN: 978-185418281-4 £55

ISBN: 978-185418339-2

The Age Discrimination Act is billed by lawyers as the most significant change in employment law since the 1970’s. In addition to sex and race discrimination laws, in the last two years employers have also had to cope with sexual orientation discrimination and religious discrimination. David Martin, an expert on employment law and practice, analyses the practical aspects of dealing with each of the anti-discrimination laws. He demonstrates how to ensure that paperwork and systems comply totally with the law, and he provides a range of helpful case studies to illustrate the key issues and bring them to life.

Effective Recruitment: A practical guide to staying within the law Leighton, Patricia & Proctor, Giles

Employee Sickness and Fitness for Work: Successfully dealing with the legal system

Many executives see employment law as an obstacle course or, even worse, an opponent – but it can contribute positively to keeping employees fit and productive. This report will show you how to get the best out of your employees, from recruitment to retirement, while protecting yourself and your firm to the full.

Employment Law Aspects of Mergers and Acquisitions: A practical guide Ryley, Michael

£95

ISBN: 978-185418363-7

This Report will help you to understand the key practical and legal issues, achieve consensus and involvement at all levels, understand and implement TUPE regulations and identify the documentation that needs to be drafted or reviewed within the context of a merger, acquisition or disposal.

£85

ISBN: 978-185418303-3

The ways to undertake the task continue to grow, making the decision as to how best to recruit for a given employment situation more complex. This specialist text is responding to a number of imperatives, including legal ones. There have been, and are, anticipated changes that make it essential that recruitment practitioners act both effectively and within the law.



Need it now? Download a PDF of the report at: www.thorogoodpublishing.co.uk

Navigating Health and Safety Law: Ensuring compliance and minimising risk

Successfully Defending Employment Tribunal Cases

Pope, Chris

Hunt, Dennis

£95

£95

ISBN: 978-185418353-8

ISBN: 978-185418267-8

If you have already been challenged by the insurer, inspector, or one of your workforce about the status of your health and safety this report will give you a workable answer to questions like Is my health and safety policy legally compliant? How do I avoid being liable for an employees ill health arising from previous employment? Who should carry out safety inspections – is it my responsibility?

Sweeping changes to the way employment tribunal claims are dealt with have increased the risk of higher costs and more expensive claims. This indispensable report covers all the changes and their implications for HR professionals.

HR, RECRUITMENT AND TRAINING Applying the Employment Act 2002: Crucial developments for employers and employees

Enabling Beyond Empowerment Williams, Michael

£95

ISBN: 978-185418084-1 Williams, Audrey

£95

ISBN: 978-185418253-1

The Act represents a major shift in the commercial environment, with far-reaching changes for employers and employees. The consequences of getting it wrong, for both employer and employee, will be considerable – financial and otherwise. The Act affects nearly every aspect of the workplace.

By applying the range of practical management techniques detailed in this report, you can provide the authority and means to empower in a way that substantially reduces the dangers.

Flexible Working Williams, Audrey

£95

ISBN: 978-185418306-4

Dismissal and Grievance Procedures Hunt, Dennis

£95

ISBN: 978-185418376-7

This report explains what all the regulations say and what steps you need to take to operate effective dismissal, disciplinary and grievance procedures. It covers all the requirements of the Disputes Resolution Procedures that came into effect in October 2004. It tells you where and when the regulations apply – and what you need to do.

Recent research shows that far too many individuals, as well as firms, are unaware of flexible working rights. How employers and employees deal with them is of crucial – and increasing – importance to both. This report clarifies the law, sets out the rights of employer and employee, and offers valuable practical advice on best practice.



HOW TO ORDER Email: [email protected]

Please see order form at the back of this report

Telephone: +44 (0)1235 465 500

Post: Marston Book Services, PO Box 269 Abingdon, Oxon OX14 4YN

Fax: +44 (0)1235 465 556


New Ways of Working

THE THOROGOOD PROMISE

Jupp, Stephen


ISBN: 978-185418169-5

How to Turn your HR Strategy into Reality Grundy, Tony

£85

ISBN: 978-185418183-1

From a diagnosis of HR issues to an analysis of the external and internal future environment of your company and the effect on your human resources – this is practical information aimed at HR and senior line managers.

Internal Communications Farrant, James

£99

£95

ISBN: 978-185418149-7

There is growing evidence that the organisations that ‘get it right’ reap dividends in corporate energy and enhanced performance. In these organisations, internal communications have equal status with the external communications functions. This practical report will show you how internal communications, taken in their widest sense, can improve the performance of organisations.

New ways of working examines the nature of the work done in an organisation and seeks to optimise the working practices and the whole context in which the work takes place. It is more about promoting the best ways of doing things than simple cost driven change. Although it emphasises the importance of business and organisation, it spans the concerns of people, property, technology, community and environment.

Power Over Stress at Work Araoz, Daniel

£99

ISBN: 978-185418176-3

The HR manager can learn how to deal creatively with stress from the information in this briefing and pass on their knowledge down the ranks. He or she will then halt the downward spiral of diffusing stress and produce a more positive knock-on effect – namely to increase the productivity of the entire workforce and reduce absenteeism resulting from this terrible illness.

Reviewing and Changing Contracts of Employment Phillips, Annelise; Player, Tom & Rome, Paula £95 ISBN: 978-185418296-8

Mergers and Acquisitions: Confronting the organisation and people issues Thomas, Mark

£95

ISBN: 978-185418008-7

Why do so many mergers and acquisitions end in tears and reduced shareholder value? This report will help you to understand the key practical and legal issues, achieve consensus and involvement at all levels, understand and implement TUPE regulations and identify the documentation that needs to be drafted or reviewed.

The Employment Act 2002 has raised the stakes. Imperfect understanding of the law and poor drafting will now be very costly. This report will: • Ensure that you have a total grip on what should be in a contract and what should not • Explain step by step how to achieve changes in the contract of employment without causing problems • Enable you to protect clients’ sensitive business information • Enhance your understanding of potential conflict areas and your ability to manage disputes effectively.



Trade Secrets of Using e-Learning in Training Bray, Tony

Transforming HR Hunter, Ian and Saunders, Jane £95

ISBN: 978-185418326-2

Definitely not for ‘techies’, this report is practical and jargon-free – giving you step-by-step skills and processes to enable you to design effective e-learning products with confidence.

£95

ISBN: 978-185418361-3

The blue-print for the future of HR – how to deliver proven value to your Board, business and colleagues. The report is based on interviews with 60 HR leaders from across industry and public and not for profit sectors. The report covers HR outsourcing and shared services.

MARKETING, PR AND SALES Corporate Community Investment Genasi, Chris

£99

Scott, Simon

ISBN: 978-185418192-3

Supporting good causes is big business – and good business. Corporate community investment (CCI) is the general term for companies’ support of good causes, and is a very fast growing area of PR and marketing.

Defending your Reputation Taylor, Simon

£99

ISBN: 978-185418251-7

‘Buildings can be rebuilt, IT systems replaced, people can be recruited, but a reputation lost can never be regained…The media will publish a story – you may as well ensure it is your story’ Simon Taylor. ‘News is whatever someone, somewhere, does not want published’ William Randolph Hearst When a major crisis does suddenly break, how ready will you be to defend your reputation?

Implementing an Integrated Marketing Communications Strategy Hart, Norman

Insights into Understanding the Financial Media: An insider’s view

£99

£99

ISBN: 978-185418083-4

This briefing will help you understand the way the financial print and broadcast media works in the UK. It will also provide you with techniques and guidelines on how to communicate with the financial media in the most effective way, to help you achieve accurate and positive coverage of your organisation and its operations.

Lobbying and the Media: Working with politicians and journalists Burrell, Michael

£99

ISBN: 978-185418240-1

Lobbying is an art form rather than a science, so there is inevitably an element of judgement in what line to take. The best lobbying is always based on accurate, up-to-date information and on a wellargued case, founded on credible evidence, and delivered to the right audiences in the right tone of voice at the right time. Sounds simple, but it isn’t. This expert report explains the knowledge and techniques required.

ISBN: 978-185418120-6

Get ahead and stay ahead of your competition through better integration of your marketing communications. Norman Hart was an international consultant, lecturer and author on marketing, advertising and public relations. His books included The CIM Marketing Dictionary, Strategic Public Relations, The Practice of Advertising and Industrial Marketing Communications.

THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt, we will refund the cost of the publication, no questions asked.

Managing Corporate Reputation: The new currency Dalton, John & Croft, Susan

Strategic Customer Planning Melkman, Alan & Simmonds, Ken £95

ISBN: 978-185418272-2

ENRON, WORLDCOM… who next? At a time when trust in corporations has plummeted to new depths, knowing how to manage corporate reputation professionally and effectively has never been more crucial. This report shows you how to:

£95

ISBN: 978-185418388-0

This is very much a ‘how to’ report. After reading those parts that are relevant to your business, you will be able to compile a powerful customer plan that will work within your particular organisation for you. Charts, checklists and diagrams throughout.

• Develop PR, brands and relationship management as the vanguards of your corporate reputation

Strategic Planning in Public Relations

• Strengthen your internal as well as external communications

ISBN: 978-185418225-8

• Improve the effective management of your stakeholders

Practical Techniques for Effective Lobbying Miller, Charles

£95

Knights, Kieran

£99

Tips and techniques to aid you in a new approach to campaign planning. Strategic planning is a fresh approach to PR. An approach that is fact-based and scientific, clearly presenting the arguments for a campaign proposal backed with evidence. This report provides valuable tips and techniques to improve your PR and campaign planning.

ISBN: 978-185418089-6

Understanding the system and the process in which it works is essential to lobbying effectively. Uncoordinated, uncontrolled and badly planned approaches will do more harm than good, and risk antagonising the people you most want to influence. This report provides the techniques required for effective lobbying.

Successful Competitive Tendering

Public Affairs Techniques for Business

Techniques for Ensuring PR Coverage in the Regional Media: An insider’s view

Wynne-Davies, Peter

£95

Woodhams, Jeff ISBN: 978-185418235-7

To win business, you must make a convincing case. This report will help you become more skillful, and more successful in your tendering.

Imeson, Mike

ISBN: 978-185418175-6

This report shows in practical terms how you can counter potential threats through a professionally structured and implemented public affairs campaign. Today’s successful companies recognise that in order to survive and prosper a comprehensive and disciplined approach to public affairs is no longer just a useful asset, it is now a necessity.

£95

£99

ISBN: 978-185418019-3

This in-depth briefing will give you the tools and techniques you need to enjoy the opportunities offered by the regional and local media. It offers you practical guidance and advice on how to apply them with maximum effect for your next PR campaign.

Selling Skills for Professionals Tasso, Kim

£99

ISBN: 978-185418179-4

Many professionals still feel awkward about really selling their professional services. They are not usually trained in selling. This is a much-needed report which addresses the unique concerns of professionals who wish to sell their services successfully and to feel comfortable doing so.



Order Form FIVE WAYS TO ORDER: Email: [email protected] Tel:

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Post: Marston Book Services, 10-12 Rivington Street, London EC2A 3DU

Fax:

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Title

ISBN

Price Authors

Commercial Contracts: Drafting techniques and precedents

978-185418271-5 £169

Ribeiro, Robert

Commercial Litigation: Damages and other remedies for breach of contract

978-185418397-2 £169

Ribeiro, Robert

Corporate Governance

978-185418354-5 £85

Martin, David

Email: Legal issues

978-185418256-0 £80

Singleton, Susan

Freedom of Information Act

978-185418347-7 £95

Singleton, Susan

International Commercial Agreements

978-185418286-9 £95

Attree, Rebecca

Insights into Successfully Managing the In-house Legal Function

978-185418174-9 £95

O’Meara, Barry

Software Contract Agreements

978-185418146-6 £80

Bond, Robert

Achieving Business Excellence, Quality and Performance Improvement

978-185418018-6 £95

Chapman, Colin & Hopper, Dennis

The Commercial Exploitation of Intellectual Property Rights by Licensing

978-185418285-2 £95

DesForges, Charles

Intellectual Property Protection and Enforcement

978-185418054-4 £159

Brazell, Lorna

Waste Management: The changing legislative climate

978-185418367-5 £80

Hand, Caroline

Websites and the Law

978-185418331-6 £80

Singleton, Susan

A Practical Guide to Knowledge Management

978-185418230-2 £99

Brelade, Sue & Harman, Chris

Analyse your Business – A performance health check

978-185418170-1 £89

O’Connor, Carol

Tendering & Negotiating MoD Contracts

978-185418276-0 £95

Boyce, Tim

Understanding SMART Procurement in the MOD

978-185418164-0 £69

Boyce, Tim

IT Governance

978-185418371-2 £169

Norfolk, David

Practical Techniques for Effective Project Investment Appraisal

978-185418099-5 £99

Tiffin, Ralph

Project Risk Management: The commercial dimension

978-185418257-9 £95

Boyce, Tim

Strategy Implementation Through Project Management

978-185418250-0 £99

Grundy, Tony

Surviving a Corporate Crisis: 100 things you need to know

978-185418208-1 £80

Batchelor, Paul

Technical Aspects of Business Leases: Overcoming the practical difficulties

978-185418194-7 £95

Dowden, Malcolm

Tax Planning for Businesses and their Owners

978-185418334-7 £95

Hughes, Peter

Trade Secrets of Business Disposals

978-185418321-7 £145

Pearson, Barrie

Qty

THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt, we will refund the cost of the publication, no questions asked.

Title

ISBN

Price Authors

Trade Secrets of Successfully Acquiring Unquoted Companies

978-185418366-8 £145

Pearson, Barrie

VAT Liability and the Implications of Commercial Property Transactions

978-185418307-1 £149

Buss, Tim

Data Protection Law for Employers

978-185418283-8 £80

Singleton, Susan

Discrimination Law and Employment Issues

978-185418339-2 £55

Martin, David

Effective Recruitment: A practical guide to staying within the law

978-185418303-3 £85

Leighton, Patricia & Proctor, Giles

Employee Sickness and Fitness for Work: Successfully dealing with the legal system

978-185418281-4 £95

Howard, Gillian

Employment Law Aspects of Mergers and Acquisitions: A practical guide

978-185418363-7 £95

Ryley, Michael

Navigating Health and Safety Law: Ensuring compliance and minimising risk

978-185418353-8 £95

Pope, Chris

Successfully Defending Employment Tribunal Cases

978-185418267-8 £95

Hunt, Dennis

Applying the Employment Act 2002: Crucial developments for employers and employees

978-185418253-1 £95

Williams, Audrey

Dismissal and Grievance Procedures

978-185418376-7 £95

Hunt, Dennis

Enabling Beyond Empowerment

978-185418084-1 £95

Williams, Michael

Flexible Working

978-185418306-4 £95

Williams, Audrey

How to Turn your HR Strategy into Reality

978-185418183-1 £85

Grundy, Tony

Internal Communications

978-185418149-7 £95

Farrant, James

Mergers and Acquisitions: Confronting the organisation and people issues

978-185418008-7 £95

Thomas, Mark

New Ways of Working

978-185418169-5 £99

Jupp, Stephen

Power Over Stress at Work

978-185418176-3 £99

Araoz, Daniel

Reviewing and Changing Contracts of Employment

978-185418296-8 £95

Phillips, Annelise; Player, Tom & Rome, Paula

Trade Secrets of Using e-Learning in Training

978-185418326-2 £95

Bray, Tony

Transforming HR

978-185418361-3 £95

Hunter, Ian and Saunders, Jane

Corporate Community Investment

978-185418192-3 £99

Genasi, Chris

Defending your Reputation

978-185418251-7 £99

Taylor, Simon

Implementing an Integrated Marketing Communications Strategy

978-185418120-6 £99

Hart, Norman

Insights into Understanding the Financial Media: An insider’s view

978-185418083-4 £99

Scott, Simon

Lobbying and the Media: Working with politicians and journalists

978-185418240-1 £99

Burrell, Michael

Managing Corporate Reputation: The new currency

978-185418272-2 £95

Dalton, John & Croft, Susan

Qty



Title

ISBN

Price Authors

Practical Techniques for Effective Lobbying

978-185418089-6 £95

Miller, Charles

Public Affairs Techniques for Business

978-185418175-6 £95

Wynne-Davies, Peter

Selling Skills for Professionals

978-185418179-4 £99

Tasso, Kim

Strategic Customer Planning

978-185418388-0 £95

Melkman, Alan & Simmonds, Ken

Strategic Planning in Public Relations

978-185418225-8 £99

Knights, Kieran

Successful Competitive Tendering

978-185418235-7 £95

Woodhams, Jeff

Techniques for Ensuring PR Coverage in the Regional Media: An insider’s view

978-185418019-3 £99

Imeson, Mike

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The Secrets of Consulting: A Guide to Giving and Getting Advice Successfully

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Theory of International Trade

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Trade Secrets of Successfully Acquiring Unquoted Companies

Trade Secrets Of Successfully Disposing Of Unquoted Companies (Thorogood Professional Insights)

Trade Secrets

Coaching Swimming Successfully (Coaching Successfully)

Make-up - Trade Secrets of the Professionals

Trade Secrets: Law and Practice

50 Trade Secrets of Great Design: Packaging

Logos Redesigned: How 200 Companies Successfully Changed Their Image

Coaching Soccer Successfully (Coaching Successfully Series)

Marketing Excellence: Winning Companies Reveal the Secrets of Their Success

SaaS 100 Success Secrets - How companies successfully buy, manage, host and deliver software as a service (SaaS)

Successfully Negotiating in Asia

Cover Letter Magic: Trade Secrets of Professional Resume Writers

Coaching cross country successfully

Coaching football successfully

Coaching cheerleading successfully

Coaching Basketball Successfully

Resume Magic: Trade Secrets of a Professional Resume Writer

Writing Successfully in Science

Acquiring a Non-Native Phonology

Coaching Wrestling Successfully

Acquiring phonology: a cross-generational case-study

Balance of Trade

Tricks of the Trade

Tricks of the Trade

The Secrets of Consulting: A Guide to Giving and Getting Advice Successfully

Balance of Trade

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