Buying another firm can bring interesting benefits, says Azhic Basirov, partner at nominated advisers Smith & Williamson Corporate Finance. He highlights key acquisition issues facing companies acquiring others.
The rules of the AIM market make it relatively easy and cost effective for companies already listed on AIM to make acquisitions. Having identified the right target, buying it can offer many benefits, not least because it can be a means to achieve growth geographically, through product expansion or acquiring new technologies. Corporate acquisitions can also facilitate improvements in customer service or efficiency besides, of course, raising shareholder value. So, having decided on an acquisition, what are the key issues?
At an early stage the advisers should be consulted to ensure that the implications of the AIM transaction rules are considered in devising an appropriate timetable to completion. The advisers should also be able to highlight any other issues which may be relevant to the transaction – such as market related issues if a fund raising is being contemplated or the possible reactions of the incumbent investors if their approval is required.
Once the headline price is agreed, refinements to the structure of the consideration can be addressed, such as an appropriate mix of shares, cash and loan notes. If the consideration includes deferred payments dependent on performance, these must be carefully defined at the outset. Similarly, the implications of any ring-fencing arrangements put in place to protect the deferred consideration payable to the vendors should be considered.
It is also essential to carry out due diligence on the target company and such investigation would typically include commercial, legal, technical and accounting issues. Although speed may be important when carrying out due diligence, quality of investigation undertaken should never be compromised for speed or cost as mistakes can prove expensive.
Other recurring issues include warranties and indemnities, and it is wise to identify in advance any commercially high-risk areas and discuss these with the vendors in good time. Good commercial advice can be very helpful to both parties in these areas. Tax planning and clearances are also key to timely completion of any acquisition, making the early appointment of tax advisers necessary. The tax advantages to vendors should be highlighted by the acquiring companies offering their shares as consideration as this can play an important part in tax planning from the vendors’ point of view and may become relevant in agreeing the makeup of the consideration.
Where directors or executives of the target company become substantial shareholders in the purchaser as a result of the transaction, the lock-in requirements under the AIM rules should be considered and the acquirer may wish to lock-in such shareholdings in any event. The acquiring company should review the target company’s service contracts for key staff as well as the incentives, benefits, pensions and share option schemes which have been in operation. Typically, the purchaser may wish to bring these into line with its own reward structure.
In summary, while ease of regulation is offered on AIM, any acquisition needs proper commercial assessment by a firm’s directors and advisers.
Credit and for further information:
Azhic Basirov, partner at Smith & Williamson, specialises in advising companies on AIM listings, restructuring and raising finance.
Note to editor:
The Smith & Williamson Group combines a chartered accountancy and corporate finance practice with an investment management and private banking house. The corporate finance department is currently Nominated Adviser to 13 companies. In addition to AIM-related work, the firm’s partners advise on company purchases and sales, fund raising of both debt and equity, management buy-outs and buy-ins, corporate reorganisations, mergers and acquisitions. Smith & Williamson is regulated by SFA and is the UK member of M&A International, a worldwide group of merger and acquisition specialists.
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.
