European merger and acquisition market activity picks up pace

05 October 2016 Consultancy.uk

European merger & acquisition activity picked up in the third quarter of 2016, rising to 47 deals from 35 in the previous quarter, according to Willis Towers Watson’s latest Quarterly Deal Performance Monitor.

Every quarter Willis Towers Watson, a global consulting firm, conduct research – run in partnership with Cass Business School – into the main developments in the merger and acquisition (M&A) market. The analysis shows that Europe enjoyed a significant increase in deal volume, at nearly 50 in the past quarter (the data is based on deals with a value of $100 million or more). In comparison, North America faced a noteworthy drop in volume, with 94 deals completed this quarter vis a vis 118 in Q3 2015. 

The research also looks at the share performance of companies post deal completion, finding that acquirers maintained their run of achieving excellent financial performance in Q3. On average deal-makers returned a market outperformance* of 5.2 percentage points (pp) above index, although a slight drop compared to 5.8pp in the prior quarter.

M&A Volume Q3 2016

Both North America and Europe saw their buyers book above average share-price performance. The return for North American acquirers jumped from 1.5pp in Q2 2016 to 6.2 pp above index in Q3 2016, while deal makers from Europe booked an outperformance of 7.8pp above the regional index, extending a run of six consecutive quarters of outperformance.

Reflecting on the results, Steve Allan, M&A Practice Leader (EMEA) at Willis Towers Watson, says: “Last quarter we posed the question: ‘Has M&A activity just paused or are we on a plateau?’, but with growing European deal volumes and continued share outperformance for acquirers, M&A activity is clearly strong and acquirers continue to deliver value.” Commenting on the contrasting results in North America, he says that the relative drop in the US volume is likely to be caused by the continued uncertainty arising from the US election, with the outperformance in the market suggesting those that are taking the plunge are being rewarded.

The Willis Towers Watson study further finds that quick deals have gained popularity: 45% of deals compared to 36% in Q2 2016, with a notable difference in the speed of completion between the regions. Approximately half of deals in North America (60%) and Europe (47%) complete in less than 70 days between announcement and competition, compared to less than one-in-five (18%) in Asia.

Acquire M&A Performance Q3 2016

Looking ahead, Allan says that 2016 could see the highest number of completed mega deals (transactions worth more than $10 billion) since the index began in 2008, with five deals completed this quarter and 22 deals YTD, matching the full year figure for completed mega deals in 2015. One of those mega deals announced in the past quarter is the merger between AB InBev | SABMiller deal – a transaction which already has been dubbed one of the most lucrative ever for external advisers.

Allan continues: “The continued momentum of mega deals, across a broad geographic base, indicates a continued belief in the capacity of transactions to transform companies and to lead to increased value.”

According to a recent research from BCG, the global M&A market is slightly down on last year, however, the deal fundamentals remain strong

* Share-price performance is measured as a % change in share price from 6 months prior to the announcement date to the end of the quarter.

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.