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Mergers And Acquisitions

Timing and Structure form the two cornerstones of corporate deal making.

James Lamont, of law firm Hart Brown, advises on how to get the best deal for mergers and acquisitions, whether buying or selling

Timing

In January 2008 Facebook was valued at anything between $3 billion and $15 billion. In January 2011 Facebook was rumoured to be valued at $50 billion. In August 2013 that figure was $100 billion.

The importance of timing in a sale, acquisition or investment, is of paramount importance in nearly every transaction, and can result in significant cost savings in both price and fees.

In terms of getting the best price and incurring minimal professional fees, if at all possible, when looking to sell your business:-

•             Sell when the business is going well

•             Sell when you don’t have to

•             Sell to someone who desperately wants you

•             Sell to someone who has the funds to buy you

and when looking to buy a business

  • buy when they want to sell more than you want to buy.

Structure 

In 2012 the walnut specialists Diamond Foods, having already acquired the distinctly British Kettle Chips put together a deal to buy Pringles, of the once you’ve popped you can’t stop fame, from Proctor & Gamble in a deal worth $2.35 billion. The deal included Diamond Foods taking on $850 million of debt and the shareholders in Proctor & Gamble owning 57% of a new company set up to hold Pringles’ business. The deal ultimately failed as Diamond Foods became embroiled in an accounting scandal.

This deal is an example of how any business wishing to sell, or to restructure, or to merge with another, may be able to structure the deal for present and future benefit (monetary or otherwise) rather than merely selling the whole, for a set price, in a single sitting.

The list of structural recipes are many but (and remaining non buyer /seller specific) some of the possibilities always worth considering are as follows:-

  • Cash up front / no cash up front
  • Earn-out / no earn-out
  • Buy / Sell part now with option to buy / sell part later
  • Don’t sell side-line business
  • Take / offer a stake in acquiring entity
  • Sell for less but aggressively limit potential future liability

In addition to timing, and as part of agreeing the structure, it is advisable to agree full (but not overly detailed) heads of terms and take tax advice. These heads of terms will set out the parameters, positions and requirements of each party and the proposed and subsequently agreed structure. This will hopefully avoid confusion further down the line and flush out what each party hopes to achieve from the transaction. For the buyer or seller it is the first chance to set out not only what the deal is but also the opportunity to see what you can get away with, how the deal will be played out and agreeing this all from the start can significantly affect the actual deal that goes through and the way that the deal is played out.

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