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What is Private Equity? FAQs About the Industry

What is private equity?

Private equity (PE) is medium to long-term finance provided in return for an equity stake in a company. The objective of the PE company is to enhance the value of a company in order to achieve a successful exit (i.e. sale).

 

Where do PE firms get their money?

PE firms generally invest funds they manage on behalf of groups of individuals, pension funds, and other major organisations.

 

What types of companies do PE firms invest in?

PE firms look for companies that can offer a lucrative exit within three to seven years. Therefore, the company has to be large enough to support investments from the PE firm and have the potential to offer large profits in a relatively short timeframe. This means that PE firms buy companies with strong growth potential, or companies that are currently undervalued because they’re in financial difficulties.

 

How are PE fund managers compensated?

PE fund managers receive their income via two channels – management fees and carried interest.

A management fee is paid by the limited partners (the people who provided money to invest) to the PE firm to pay for their involvement. The fee is calculated as a percentage of the assets to pay for ongoing expenses such as salaries.

Carried interest is a percentage of profits that the fund gains on the investment. This compensation helps to motivate the PE fund managers to improve the company’s performance.

What is a platform company?

A platform company is the initial acquisition made by a PE firm in a specific industry. Typically, a platform company has a strong management team to drive the company forward and a proven track record in a specific industry. This company is the foundation for subsequent companies acquired in the industry.

Ready to explore your exit and growth options?

 

What is a bolt-on company?

A bolt-on company is in a trade which the PE firm has already invested and is added on to one of its platform companies. The fund will look for bolt-ons that provide competitive services, new technology or geographic footprint diversification, as well as companies that can be quickly integrated into the existing management structure. Typically, a bolt-on company is smaller than a platform company and has minimal infrastructure in terms of finance and administration.

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Which is the Best Way to Structure the Sale of my Business?

When selling your business, receiving offers is a big hurdle to overcome so, when this happens, it might seem like plain sailing from here. Unfortunately, there is still quite a way to go with the transaction, the first being to analyse the offers on the table, to make sure they suit your exit or growth strategy.

This might not seem difficult, but there are many ways to structure a transaction. Therefore, depending on what you want to get out of the sale of your business, this will influence the type of deal you take. For example, are you planning to retire and need to live off the proceeds of the sale? Or do you want to remain involved in the business?

Ready to explore your exit and growth options?

Consider the below list of ways to structure a deal to find out which is right for you:

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What is a Management Buyout (MBO)?

There is a vast range of different types of acquirers a seller can go to when selling their business. From trade to private equity, national to international buyers, there can be a large pool of potential acquirers to approach.

One of the many options available is selling to the current management team – otherwise known as a management buyout (MBO). This is a transaction where a company’s management team purchases a majority or all of the shares from the existing shareholder(s) to take control of the company. This requires the management team to pool resources to fund the acquisition, but there are various funding options available such as private equity financiers and seller financing.

Do you have an exit or growth strategy in place?

There are different reasons as to why a company might opt for an MBO rather than look to sell to an outside company – for example, it might particularly appeal to a shareholder who is looking to retire. If the company is run by its management team and the shareholder(s) are no longer involved in the day-to-day then an MBO can allow the shareholder(s) to fully retire.

While an MBO may appeal more to a shareholder looking to retire, it can be an attractive succession plan for any company. One of the reasons being is that there is no need to disclose confidential information to outside parties such as competitors. Another reason is it ensures a smooth transition as the management team has the skills and experience to take the company forward and continuity is ensured for customers, suppliers and employees.

Nevertheless, there can be pitfalls to an MBO which must be treated with caution. If both the management team and the shareholder(s) are spending a lot of time working on the MBO, then this could be detrimental to business performance and, as MBOs require a lot of specialist knowledge in structuring and financing the deal, a lot of attention is required.

However, these pitfalls can be avoided – a good corporate finance team can assist in executing a successful MBO, without compromising business performance.

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Five Reasons Why It’s Worth Investing in an M&A Adviser When Selling Your Business

You have come to a point in your business life where you have decided that it is time to sell and move onto the next project. Of course, you want to command the best price for your business and explore all the opportunities available. As such, you have considered an M&A adviser to help in the process – but is it really worth it? They could help you generate more value for your business but if you factor in the fee for engaging their services, will you make any more money?

Then again, there are many advantages to hiring an M&A adviser, which are not just limited to value. If you have thought about hiring an M&A adviser, but are unsure of the benefits, consider the below:

 Ready to explore your exit and growth options?


They can Minimise Distractions During the Process

You know your business the best and if you are knowledgeable about the M&A process you could facilitate the transaction yourself – although this doesn’t mean you should. After all, an M&A transaction takes a significant amount of time and the time you have to spend on the transaction could end up being detrimental to business performance. As the value of a business is more often than not linked to financial performance, you need to focus your efforts into making sure the company is performing the best it can be, rather than focusing on the transaction itself.

 

They can Source a Larger Pool of Buyers

If you’re thinking of selling your business you may have an idea of the acquirers you want to approach. This is good, but an M&A adviser constantly networks with various strategic and financial buyers on a national and international basis in various industries; therefore, they have a very large pool of acquirers at their fingertips to contact about the opportunity. Not only is an M&A adviser’s pool of acquirers large, it is also varied, which means they can think outside the box and a lucrative deal could be sourced cross-sector. Another benefit of generating interest from a large pool of acquirers is you are more likely to have multiple competing bids, strengthening your negotiating stance.

 

They can Negotiate a Favourable Deal

As mentioned, an M&A adviser can help to create a competitive bidding environment which can lead to a better deal being negotiated; however, this is not the only way an M&A adviser negotiates on your behalf. Often, deals are not for 100% cash so an M&A adviser will negotiate a deal structure so both parties can reach a compromise and agreement. This can be very beneficial for you if, for example, you have just secured a large contract where earnings will increase over the next year, as, if the deal has been based on a multiple of current earnings, then you will not be correctly compensated for the contract you have secured. Therefore, an M&A adviser will negotiate a deal which will maximise value beyond the purchase price.

 

They can Protect your Interests

It is in your best interest to keep the sale of your company confidential – if it gets out that you are selling this could potentially alienate employees and customers and give your competition the upper hand. By yourself, when approaching potential acquirers, it is difficult to protect the identity of the company as it’s not easy to solicit interest without disclosing who you are. An M&A adviser, on the other hand, will have interested parties sign a non-disclosure agreement before they are given any information about the business, including the name of the business and the owner. At this stage, it is also important to gauge whether the company you are approaching has the finances to purchase your company – again, this is something which is difficult to do without compromising confidentiality.

 

They Add Valuable Resource

They say ‘first impressions are the most lasting’ so when it comes to selling your business, it is important that a potential acquirer’s first impression is first rate. An M&A adviser can assist with this through their proven processes that help businesses to market themselves as the complete package. As well, engaging an M&A adviser can add credibility to potential buyers as they can see that you are serious about conducting a transaction, which can save time and improve offers.

 

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Dustin Graham was interviewed by Business Day TV on “How to Value Your Business”

Benchmark International's Dustin Graham, Managing Director of the Cape Town and Johannesburg offices in South Africa, was interviewed by Business Day TV. The "How to Value Your Business" discussion can be viewed here: 

 

 

Is transformation important to your business?

Business Day TV is broadcast on Channel 412 on DStv and is available to over 10-million viewers in 9 countries across Southern Africa. It is one of three TV stations owned by The African Business Channel.

ABC is owned by SA’s leading financial publisher BDFM, publisher of Business Day and Financial Mail. BDFM in turn is owned by the Times Media Group, one of SA’s largest media houses. One of Business Day TV’s strengths is its access to content from this extensive network.

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Top Mistakes to Avoid When Selling

So you’ve made the big decision – you’re going to sell your business. This is likely a stressful time for you as have probably spent a lot of time and resource building up the company and may be nervous about seeing it pass over to new hands. So, from here on in, you would like to minimise the amount of stress involved by avoiding any mistakes which can easily be averted. The following are common mistakes to avoid and how Benchmark International can help:

Only Pursuing the Largest Acquirer

Surely pursuing the largest acquirer is in your best interests as they will be able to afford a premium for the company?

While they may be able to pay a premium for the company, they may not necessarily do so. An acquirer is likely to pay a premium for your company because there are synergies in place such as similar markets, products or customers that could be combined, but a large acquirer typically does not need to make the acquisition to enter these markets. An acquisitive party could also benefit from economies of scale and, therefore, will pay more for the target, but a large acquirer is unlikely to benefit from this. Even if a large acquirer is willing to pay a premium, they may absorb operations into their own company, which can cause complications for the handover, particularly if you are loyal to existing staff.

How Benchmark International Can Help: Look at all aspects of the deal and how it can benefit your company. Benchmark International can assist with sourcing the best fit for your company.

 

Ready to explore your exit and growth options?

 

Not Looking at the Bigger Picture

You’ve just received an offer from a potential acquirer – on the surface of it, it looks good, surpassing your expectations. However, the structure of the deal as a whole needs to be considered, not just the total value. For example, the consideration could be deferred, or contingent on future earnings, meaning you are not receiving all cash upon completion. It is also important that if you do decide on a structured deal, that these elements are protected, ensuring you receive the consideration.  

How Benchmark International Can Help: Benchmark International will thoroughly analyse all offers received, negotiate earn-out protections and can assess any contingent targets to ensure that the seller is able to maximise the consideration received. 

Not Creating Competitive Tension

It can certainly be a benefit to enter into the M&A process with potential acquirers in mind, perhaps one of these has even approached you at some point. However, even though it may be tempting to dive straight into a deal with an acquirer that wants you and complements your company perfectly, it is still vital to create competitive tension by generating interest from other potential acquirers. If the acquirer in mind can sense that they are the only one with an offer on the table and that you are anxious to sell to them, they could take advantage of this with a low offer.

How Benchmark International Can Help: Benchmark International will employ an approach where all potential acquirers are approached and exhausted before accepting any offers.

Using an M&A Sector Specialist

This may seem like an odd ‘mistake’ to make – why wouldn’t you want to use an M&A specialist operating specifically in your sector, surely you don’t want a generalist?

The reasoning behind this is that a general M&A firm will be able to think outside the box and target a large pool of acquirers, not limiting itself to those just in your sector.

How Benchmark International Can Help: Benchmark International has a vast and growing number of contacts giving you the best chances of receiving multiple offers, as well as significant experience across a broad number of sectors, leveraging this to identify the areas where the greatest synergies can be exploited.

Leaving it Too Long

To obtain the best price and right fit for your company, it is crucial to enter the market at the right time. It is important to strike a balance between seeking to sell when the company is on a growth curve, but also not missing the window of opportunity in the market cycle. Equally, it is important not to sell when you become desperate (e.g. you are looking at retiring soon) as acquirers could become aware of this and lower their offer accordingly.

How Benchmark International Can Help: Look at selling earlier than anticipated, not when you want an imminent exit. Benchmark International can best advise on when the right time is
to sell.

Neglecting the Day-to-Day Running of the Business

M&A transactions can be time consuming, but it is important not to let it get in the way of running the business. If an acquirer is interested in the business because profits are increasing, or a new product is due to be released to the market, for example, and this does not come into fruition because  you have taken your eye off the ball, then this could lead a buyer to renegotiate, or call the whole deal off.

How Benchmark International Can Help: The pressure of selling your business can be alleviated by Benchmark International as it will handle negotiations, leaving you to focus on running your company.

Not Negotiating Effectively at Critical Stages

Offers may go back and forth between yourself and the potential acquirer and at this point you are in a good position to negotiate. It is not until the Letter of Intent (LoI) is signed that the advantage swings to the buyer. Although the LoI is not typically legally binding it does usually stipulate a period where the seller cannot pursue further leads in the market (an exclusivity period), so competitive tension is lost. It is important, therefore, that you are completely happy with the terms (which can include such things as price, length of the exclusivity period etc.) before the LoI is signed to avoid either having to back out of a deal that could have been lucrative or being tied to a lengthy exclusivity period.

How Benchmark International Can Help: In all stages of negotiating, Benchmark International will do this on your behalf with your best interests in mind.

Author:
Lee Ritchie
Senior Director
Benchmark International

T: +44 (0) 1865 410 050
E: Ritchie@benchmarkcorporate.com

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Five Ways to Increase the Value of Your Business

You have a business with a strong bottom line and you are considering selling to realise its value. As a general rule of thumb, you used a five times multiple of earnings to work out a valuation for your company and are happy with the price you could command for your business. You put the company on the market but the prices offered are nowhere near what you expected – so what went wrong?

Companies that find themselves in this position are likely to be lacking in transferable business value. Transferable business value is a company with internal characteristics that will continue once the owner departs. Without this, no matter how strong the bottom line is, acquirers are likely to be unwilling to invest, or drive down the price paid for the company.

So, does your company have transferable business value? The below details five features that acquirers look for in a business which could increase its value.

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What Type of Company Should I Sell To? Five Types of Mergers and Acquisitions

If you are considering selling your business, then you are more than likely contemplating what type of company you want to buy your business.

As mergers and acquisitions are, broadly speaking, categorised into five different types of merger/acquisition, varying on whether the two companies are operating in the same markets or have the same products etc., this means that you have a choice of acquirer – you do not, necessarily, have to choose a buyer in the same industry doing the same thing.

Below details these five types of merger, along with benefits and disadvantages, and real examples from the industry.

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If Business Valuation Was A Science…

Determining the value of your business is not as simple as looking at the numbers, applying tried and tested formulas, and concluding. Were it that straightforward all business valuations would be virtually identical. The fact that they are not is sure proof that valuation is not a science, it can only be an art.

If Mergers and Acquisitions (M&A) was as straightforward as calculating the theoretical value of a business, based on historical performance and using that to determine market value I would need something more constructive to do with my time.

Valuation is not as primitive as we have been led to believe. Whilst transaction values are commonly represented as a multiple of earnings this is merely the accepted vernacular used to report on a concluded transaction and almost never the methodology used to arrive at the value being reported.

The worth of a business is often determined by the category of buyer engaged. Financial buyers can add significant value to a business in the right stage of its life cycle but may not assume complete ownership, thereby delivering value for the seller simultaneously with their own. The right strategic acquirer for any business would be one that can unlock a better future for the business, and is willing to recognize, and compensate, a seller for the true value the entity represents to them.

Comparing the experience of so many clients, over so many years, and avidly following the outcomes of all the transactions published in South Africa there is little dispute that businesses are an asset class, like any other, and that the best value of all asset classes are only ever realized through competitive processes irrespective of whether the acquirer has financial or strategic motives.  

 

Ready to explore your exit and growth options?

 

1.  The itch of business valuation

Simplistically, for the right acquirer - one seeking an outcome that extends past a short-term return on their initial investment - valuation is more a function of the buyer's next best alternative, than it is a businesses’ historic performance.

It would be naïve to think that the myriad of accepted valuation methodologies have no place in the process but identifying, engaging and recognising the benefits of the acquisition for a variety of strategically motivated buyers is essential in determining value in this context.

Considering a variety of appropriate valuation metrics, the parameters applied and then being able to balance these against the alternative investment required to achieve a similar outcome is where the key determinant of value lies. This is a complex process that unlocks the correct value for buyer and seller alike and it is a result that is rarely achieved without engaging with a wide variety of different acquirers and being prepared to "kiss a few frogs"

The most valuable assets on the planet are only ever sold through competitive processes where buyers have the benefit of understanding and determining value in the context of their own motives, having considered their available alternatives. It is for this reason that when marketing a business, it should never be done with a price attached. 

2.  An aggressive multiple

Whilst conventional wisdom is firm on industry average multiples, case studies abound, and the business community is regularly astounded by stated multiples achieved when companies change hands.

Beneath the glamour, the reality is that multiples are rarely used as a determinant of value, but almost without exclusion applied to understand it. Multiples represent little more than a simplistic metric that reflects an understanding of how many years a business would need to reliably deliver historic earnings in order for the acquirer to recoup their investment.

In the same way as a net asset value (NAV) valuation would unfairly discriminate against service businesses, multiples discriminate against asset rich companies. For strategic acquirers, with motives beyond an internal rate of return - measured against historic earnings - valuation is sophisticated.  It relies on an assessment of whether the business represents the correct vehicle to achieve the strategic objectives, modelling the future returns and assessing risk. Valuation in these circumstances will naturally consider it, but places little reliance on the past performance of a business constrained by capital or the conservatism of a private owner to formulate the future value of such investment. 

Whilst there are Instances where the product of such an exercise matches commonly accepted multiples, there are equally as many valuations that, on the face of it, represent unfathomable results. 

3.  A better tomorrow for the buyer

It would be irresponsible to advocate that that return on investment is not a consideration when determining value - corporate companies and private equity firms typically all have investment committees, boards and shareholders that assess the financial impact of any transaction. It is rare that such decisions are ever vested with a single individual, or that the valuation is derived from their personal desire to own a company or brand.

The art of valuation requires a reliable determination of the synergies between buyer and seller and an accurate assessment of the risks and benefits of the investment. Risk and reward are inherently related and skilled negotiation is required to find solutions that mitigate, or de-risk a transaction for buyer and seller alike, in order to underpin the value
of a transaction.

Financial buyers can be very good acquirers, especially in circumstances where they are co-investing alongside existing owners, staff or management to provide growth funding. When seeking a strategic partner for a business the acquirer should always be unable to unlock value beyond the equivalent of a few years of historical earnings. It is for this reason that the disparity between valuations by trade and financial buyers exists, and why determining the appropriate form of acquirer for any business is a function of the objectives of the seller.

4.  Passing-on the baton, or living the legacy

The motives for a sale can be varied and extend from retirement to funding and growth, from ill-health to a desire to focus on the technical (as opposed to management and administration) aspects, of the business.

Value for buyers and sellers comes in many different forms. For sellers it is their ultimate objective that determines whether they have achieved value in a transaction. For sellers it may be as simple as the price achieved or it could extend to value beyond the balance sheet as diverse as leveraging the acquirer’s BEE credentials, unconstrained access to growth capital or even to secure a future for loyal staff.

For both local and international buyers alike, the intangibles may be as straightforward as speed to market in a new geography who would otherwise not readily secure vendor numbers with the existing customers of the target business. An acquisition may be motivated by access to complimentary technology, skills or distribution agencies to diversify their own offering. Whatever the motives, an assessment of the future of the staff will always be an important aspect to both parties.

There are few, if any businesses, that are anything without the loyal, skilled and hardworking people that deliver for the clients of a business. The quality of resources, succession and staff retention are all factors that weigh on a decision to transact. Navigating the impact of a transaction on staff is a factor that cannot be ignored and the timing of such announcements can be meaningful.

Author:
Andre Bresler
Managing Director
Benchmark International

T: +44 (0) 1865 410 050
E: Bresler@benchmarkcorporate.com

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Five Ways to Value Your Business

The first question you will probably want to ask when thinking about selling your business is – what is it actually worth? This is understandable, as you do not want to make such a big decision as to sell your business without knowing how much it could command in the market.

Below are five different ways a business can be valued, along with which type of companies suit which type of valuation.

Multiple of Profits

A common way for a business to be valued is multiple of profits, although this typically suits businesses that have an established track record of profits.

To determine the value, you will need to look at the business’ EBITDA, which is the company’s net income plus interest, tax, depreciation and amortisation. This then needs to be adjusted to ‘add-back’ any expenses that may have been incurred by the current owner which are unlikely to be incurred by a new owner. These could be either linked to a certain event (e.g. legal fees for a one-off legal dispute), a one-off company cost (e.g. bad debts, currency exchange losses), are at the discretion of the current owner (e.g. employee perks such as bonuses), or wages/costs to the owner or a family member that would be more than the typical going rate.

Once the adjusted EBITDA has been calculated this figure needs to be multiplied; this is typically between three and five times; however, this can vary – for example, a larger company with a strong reputation can attract towards an eight times multiple.

This provides an Enterprise Value, with the final ‘Transaction Value’ adjusted for any surplus items, such as free cash, properties and personal assets.

 

Ready to explore your exit and growth options?

 

Asset Valuation

Asset valuation is suitable way to value a business that is stable and established with a lot of tangible assets – e.g. property, stock, machinery and equipment.

To work out the value of a business based on an asset valuation the net book value (NBV) of the company needs to be worked out. The NBV then needs to be refined to take into account economic factors, for example, property or fixed assets which fluctuate in value; debts that are unlikely to be paid off; or old stock that needs to be sold at a discount.

Asset valuations are usually supplemented by an amount for goodwill, which is a negotiable amount to reflect any benefits the acquirer is gaining that are not on the balance sheet (for example, customer relationships).

Entry Valuation

This way of evaluating the value of a company simply involves taking into account how much it would take to establish a similar business.

All costs have to be taken into account from what it has taken to start-up the company, to recruitment and training, developing products and services, and establishing a client base. The cost of tangible assets will also have to be taken into account.

This method for valuing a business is more useful for an acquirer, rather than a seller, as through an entry valuation they can choose whether it is worth purchasing the business, or whether it is more lucrative to invest in establishing their own operations.

Discounted Cash Flow

Types of companies that benefit from the discounted cash flow method of valuing a business include larger companies with accountant prepared forecasts. This is because the method uses estimates of future cash flow for the business.

A valuation is reached by looking at the company’s cash flow in the future, and then discounts this back into today’s money (to take into account inflation) to give you the NPV (net present value) of the business.

Valuing a business based on discounted cash flow is a complex method, and is not always the most accurate, as it is only as good as its input, i.e. a small change in input can vastly change the estimated value of a company.

Rule of Thumb

Some industries have different rules of thumb for valuing a business. Depending on the type of business, a rule of thumb can, for example, be based on multiples of revenue, multiples of assets or of earnings and cash flow.

While this method may have its merits in that it is quick, inexpensive and easy to use, it can generally not be used in place of a professional valuation and is instead useful for developing a preliminary indication of value.

To summarise, the methods of valuation can very much vary in terms of complexity and thoroughness, and different industries will find different methods more useful than others. A good M&A adviser can best suggest which way to value your business, as well as help to counter offers in the latter stages of the process with an accurate valuation in mind.

 

Author:
Tony Yerbury
Director
Benchmark International
T: +44 (0) 1865 410 050
E: Yerbury@benchmarkcorporate.com


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To PE or Not to PE – Is a Private Equity Firm the Right Type of Buyer for My Company?

If you are considering the sale of your company, then you may have also thought about what type of acquirer you would like to approach. You may have considered a private equity firm (PE firm) as an attractive prospect, as there are a range of benefits from partnering with PE firms such as the amount of funding available, their active involvement in the company and their expertise in creating value.

There are, however, certain criteria that PE firms look for when sourcing acquisition targets and the following tend to be what they will look for in a portfolio company:

 

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Life After Sale

There are a myriad of reasons why you might look to sell your company: retirement, further resources are required to grow, or it is an opportunistic time. Whatever the reason, this is likely to be the pinnacle of your career as the amount of time and money invested into your business will come to fruition when it sells, securing the future for you and your family.

But what happens after a sale? The business which you have invested years into, and the place where you spent the majority of your time, has passed on to somebody else. You may have made a tidy sum of money from the sale, which many people would be satisfied with as they may never have to work again and be able to live in the lap of luxury, but once the holiday of a lifetime has been taken, what then?

And what about how the company will thrive going forward? This is maybe something that you have grown from the beginning, and you want to see its continued success, as well as ensure the future of your employees who have been loyal to you.

At Benchmark International, we understand that there is life after the sale of a business and so structure a shareholder’s exit to suit both them, and the welfare of the company going forward.

The following are companies which Benchmark International has sold and structured the deal to allow for a successful life after a sale for both the shareholder(s) and the business.
ROC NORTHWEST

ROC Northwest had been established for nine years before the shareholders, Hilary and Glyn Waterhouse, decided to sell. They had built up a company which provided education, residential, and domiciliary care services to young people with emotional and behavioural difficulties, autism spectrum disorders, learning and physical disabilities, and those with challenging behaviour issues, from seven properties throughout the north west of the UK.

They had a vested interest in ensuring that the company was sold to the right acquirer, not just to ensure that the welfare of the young people in their care was maintained, but also to ensure that the staff that had been loyal to them remained in employment. As such, a large number of interested parties were presented to ROC Northwest and the shareholders were able to choose the acquirer which best fit their ideals. Commenting on the acquirer’s plans going forward, Glyn said:

“We actually sold the company to a firm called CareTech Holdings PLC. They wanted to keep our managers, they wanted to keep the staff, they wanted to keep the homes. In fact, they didn’t want to change anything about the business. It was very important because once you start a business from scratch, you want that business to succeed; you’ve got loyalty from your staff, and you want the staff to be in place and have their jobs, so it was very important that we found a buyer that followed that ethos and allowed us to continue the hard work that we were doing.”

The shareholders at ROC Northwest wished to sell the company as they were looking at other business opportunities and wanted to spend more time together as a family. As this was the case, Benchmark International negotiated a seven figure deal with the majority forming a cash payment on completion. Now, Hilary has been able to purchase an equine business and has a total of eleven horses, growing from two.

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New GDPR Regulations in Europe: What Does This Mean for M&A?

On the 25th May 2018, a new data protection regulation (the General Data Protection Regulation or GDPR) replaces the Data Protection Directive with the aim of protecting the personal data and privacy of EU citizens. It must be adhered to by all companies conducting business in the EU, regardless of the location in which they operate.

So, in the context of M&A activity, how will this affect you? One of the changes places a heavier emphasis on the privacy of a company’s customers; therefore, companies will be scrutinised on how they collect, store, use and transfer personal data. The knock-on effect this then has is that during a transaction, an acquirer will carry out even more comprehensive checks on the target, examining internal data protection systems and processes and undertaking checks on contracts with suppliers and subcontractors, which must comply with the new regulation.

This is in an acquirer’s best interest, as they inherit any existing data protection liabilities from the seller post-sale and the penalties for a breach are steep, attracting a maximum fine of either €20m, or 4% of global turnover, depending on whichever figure is highest.

It also will have an effect on the communicating of personal data during the due diligence process between an acquirer and seller. Personal data can now only be disclosed if the acquirer can show a legitimate interest. While in the M&A process, an acquirer can prove that they do have a legitimate interest in the data this is unlikely to extend to every individual involved in the business, instead just encompassing members of the organisation such a managers. Care then has to still be taken to not personally identify any individual outside of this remit, so a seller must make sure they are cautious not to identify individual customers or employees and suitably anonymise this data.

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Due Diligence – How it can be your Foe, but should be your Friend

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Greening Due Diligence: Environmental Factors to Consider in M&A Preparation

‘Green-washing’ is pretty much endemic in the business world, with every company worth its salt aiming to showcase its environmental credentials, whether rightfully or as a PR exercise.

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People-Centred Data: A Crucial Tool in M&A

Of all the obstacles inherent in the M&A process, something that’s often overlooked is ‘the people factor’ – that’s to say, understanding, planning and correctly valuing the HR and employment side of a business, as well as company culture – an aspect that’s crucial when two companies come together.

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Due Diligence in Mergers and Acquisitions: A Beginner’s Guide to the Top Five Areas of Interest

Due diligence by potential buyers takes up a serious amount of time in any M&A process. Essentially, it’s designed to make sure the buyer knows exactly what it is that they’re buying – and in other cases, ‘reverse diligence’ helps the target company understand whether a potential buyer or merger partner is right for them.

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To Sell or Not to Sell: The Top Four Reasons Entrepreneurs Choose to Sell

Entrepreneurs, by nature, are people who spend a considerable amount of time looking for the next opportunity. And for them, 'the next opportunity' often includes a suitable time to sell their company.

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The role of HR in deal making

Within M&A there will always be a winner and, ideally, the deal will be a resounding success for both parties. However, more often than not there will be someone who loses out, and the road towards successful M&A is not always straightforward.

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M&A FAQs: We Answer Your Questions

The team at Benchmark International is often approached by business owners with questions about M&A and what the typical process looks like. As with most things in the business world, one merger or acquisition is rarely the same as the last, but there are some key areas that you need to be aware of if you are thinking of buying or selling a business.

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Utilising Business Culture for M&A Success

Business culture is one of the most influential factors when it comes to mergers and acquisitions. Unfortunately, it is also often one of the most overlooked.

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Controlling the M&A Story

Rumours will typically run wild when M&A is on the horizon, which can create an atmosphere of fear and unsettling instability within an organisation. We take a look at the challenges facing businesses when trying to keep a potential deal under wraps, why timing is everything when it comes to a deal announcement and the tactics businesses can use when controlling their M&A story.

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Letter of Intent for Mergers and Acquisitions

In a corporate merger or acquisition, it is imperative to make sure that both companies involved are on the same page in the early stages of the process. M&A is complicated and require costly resources, therefore it is important to know what each party is prepared to offer before proceeding with the transaction. One method to make sure that both parties are on the same page is to draft and produce a letter of intent (LOI), which outlines the deal points of the merger or acquisition and serves as a type of “agreement to agree”.

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How to Avoid Irrational Decision Making in M&A

When making decisions, most people tend to go with their gut feeling rather than relying on the accurate data available. People will not like to admit this, but as humans we find it very difficult to remain 100% objective. Inevitably, emotions become a factor when running a business which is natural as you must have some form of passion in order to run a company and make it a success. Particularly when it comes to a potential deal being made, emotions can outweigh cold hard facts.

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Communication is Key in M&A

The merging of two companies can, in any instance, create a significant amount of upheaval, worry or concern for the parties involved. Successfully integrating two organisations without any teething issues is by no means a simple process and, according to professional services giant PWC, the flurry of activity surrounding a deal means that good communication is often overlooked.

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How M&A Impacts Your Staff

When businesses consider the possibility of a merger or acquisition, the benefits of the change are examined; improved profitability, availability of new markets and enhanced/strengthened competitive position. Now, while it is difficult to argue that these aspects of M&A can be extremely good for a company’s bottom line, the same may not be true for the business’ employees.

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How to Navigate M&As as a Small Business or Start-up

As a small business or start-up, the prospect of undergoing a merger or acquisition can be daunting. However, this need not be the case and it can, in fact, bring positive results to your company.

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Top M&A Codenames

In the high-stakes world of M&A, discretion is the one of the most important elements, as all parties involved are under an ethical and contractual obligation to keep details private until the time is right to announce the deal. During this period, acquisitions are often given cryptic codenames to avoid drawing unnecessary attention.

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BBC Radio 2: Jeremy Vine Talks Family Business

Last week, during Jeremy Vine’s show on BBC 2, the hot topic on the business queries agenda heard Vine and business expert Nick Brown discussing the trials and tribulations that UK family business owners face when they are no longer a part of the company. The key question: do you have an exit strategy in place?

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How Family Members Will Deliver Future Business Success

In the latest in our blog series on the impact of family ownership on succession planning for businesses, we look at how complex emotions can result in difficult decision making for businesses owners in terms of exit prospects.

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Preparing for a Transaction – Expect the unexpected

In many cases, mid-market business owners and entrepreneurs, like you, only go through the mergers and acquisitions process once in a lifetime. It’s difficult to know what to expect from a transaction, and business owners often, unknowingly, limit their chances of achieving an ideal outcome for what will likely be the biggest deal of their lives.

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Top tips for preparing to sell your IT business

Oculus, the virtual subsidiary of Facebook, has purchased British firm Surreal Vision as part of a drive to acquire virtual reality-focused businesses. The team at Surreal Vision is said to be moving to Washington to work at the Oculus lab. So how do small IT businesses get on the radar of the bigger companies if their owners have acquisition on their mind? Here are some top tips for you if you are considering selling your IT business and want to ensure that you attract the best buyers.

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The Art of Due Diligence - Part 3

Best practises for classifying and producing due diligence materials

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The Art of Due Diligence - Part 2

The biggest fear for any buyer in an M&A transaction is purchasing a problem rather than a solution.

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The Art of Due Diligence - Part 1

This is the first of three blogs that will give you, the business owner looking to sell your company, an insight into the art of due diligence and its important in the M&A process.

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10 steps to maximise the value and saleability of your business - Step 10

Throughout our 10 blog series, we have discussed the different processes and stages recommended for you, a business owner, to take that could make your company more valuable and saleable.

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10 steps to maximise the value and saleability of your business - Step 9

In our penultimate blog we will discuss legal issues in your business, and the importance of tackling them.

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10 steps to maximise the value and saleability of your business – Step 8

In the final three instalments of our 10 blog series, we will discuss running your business as though selling is not a necessity, tackling problems that may lead to legal disputes and the importance of first impressions of your company. 

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10 Steps to maximise the value and saleability of your business - Step 6

You, as a business owner, need to be aware of the vulnerabilities faced by your business if the products and services you offer are easy to replicate.

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10 Steps to maximise the value and saleability of your business - Step 5

At the halfway stage of our 10 blog series we’ve already discussed removing owner dependence, demonstrating growth in sales, profits and cash with good projections, reducing customer and supplier dependence, adding depth in staff, and making sure your business’ brand values are clear, attractive and resilient.

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