The merger and acquisition market has remained active
over the last several years, despite the challenging times in which
we all do business, Admittedly, a percentage of transactions, that
might have completed in easier times, have not done so. Tim Sadka,
Head of our Corporate Team, considers the issues
further.
Such failures are often the result of (1) debt finance not being
available or on terms that are not commercially attractive to the
participants and/or (2) businesses having risk profiles and
practices which do not meet the higher standards of due diligence
which have evolved in recent times.
The risks of transactions falling over at the due diligence stage
has led to increased client interest in reviewing activities well
in advance of a transaction and we are increasingly involved in
pre-exit grooming exercises, working with clients and other
advisors, to ensure all risks are identified and managed in advance
of an exit process.
Aside from the broad due diligence risk, market forces and best
practice have adjusted to the prevailing environment. As a result
some deals, which might otherwise have fallen away, have been saved
with creative deal structures helping to bridge the funding gap. As
Tim Sadka, Partner and Head of Corporate identifies, we have seen a
trend towards “vendor initiated transactions” which
include some or all of the following characteristics - realistic
pricing, flexible payment terms and deferred consideration, often
secured but ranking flexibly alongside other debt providers and
vendor roll over of a percentage of the equity participation.
The vendor initiated route has many attractions for the vendor.
Aside from facilitating the exit, partial re-investment in a
business one understands can be a more attractive investment
decision for a vendor otherwise looking to the equity and bond
markets with uncertain and/or unexciting returns. Importantly, such
transactions can be driven on favourable terms so far as warranty
and indemnity risk of the vendor of a vendor initiated management
buy out (“VIMBO”) compared to an arm’s length
trade sale and likely a more stable transition of ownership can be
delivered.
The increasing importance of VIMBO as an exit strategy is balanced
by the need to anticipate challenges to a successful outcome. These
challenges exist in exit deals generally and are:
(1) sourcing suitable funding
(2) ensuring management team has the right credentials and
experience
(3) meeting vendor aspirations for a partial, staggered or complete
equity exit and
(4) putting in place the right advisor team.
The Rawlison Butler team has extensive experience, established
financial and advisory connections, and the resources to work with
clients to meet the challenges to achieve successful outcomes. Our
recent work on the VIMBO of the ANA Group supported by funding
provided by Lloyds Banking Group is a case in point.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.