Seven M&A consultancies advise on Dechra's duo of Dutch acquisitions

09 February 2018 Consultancy.uk

Veterinary firm Dechra Pharmaceuticals has confirmed that it will purchase Netherlands-based AST Farma and Europe-focused Le Vet in a €340 million cash and share deal. The debt-free deal saw seven merger and acquisition consultancies advise on Dechra’s twin purchase.

AST Farma is an animal pharmaceuticals firm which specialises in generic products, while Le Vet focuses on the European markets outside of the Netherlands. Working in partnership with AST Farma, Le Vet has developed a strong portfolio of products, and established a network of marketing partners across Europe, including Dechra, to sell them.

The deal, which sees Dechra formalise its ties with the pair, is worth just over £296 million, and will see Dechra pay around three quarters of the value in cash, along with 25% in new Dechra shares. The news of the deal saw shares of Dechra climb in value by 3.8% the following day, at 2,140 pence.

Dechra also plans to raise about £100 million for the deal through a placing of 5.1 million new ordinary shares at 2,050 pence each with institutional investors to fund the deal, while also issuing 3.67 million new ordinary shares to the sellers. The Veterinary firm’s acquisition of AST Farma and Le Vet is subject to a two-year lock-in, and is aimed at increasing the group’s European presence. Dechra has been seeking to purchase the duo for numerous years, and, subject to a vote of its shareholders, seems finally set to get its way.

The dealmakers and their roles

According to the group’s Chief Executive, Ian Page, “The acquisition is a rare opportunity to strengthen our European segment in all the major European countries in which we operate.”

Dealmakers

The deals between the parties were advised on by M&A experts from seven professional services firms. KPMG, who have been Dechra’s external auditor since 1997, were involved in two aspects of the deals. First, KPMG Meijburg supplied Tax Advisory services, alongside Netherlands-based JSA Tax Consultancy, before KPMG also supplied Transaction Services to the process, as did Accuracy, an international financial advisory firm. M&A Advisory work was presented by corporate finance advisory firm Capitalmind.

Legal advisory services were provided by Netherlands-based Lexence and DLA Piper, who supplied a cross-jurisdictional team lead by UK Head of Corporate Charles Cook. DLA Piper’s team also included partner Daphne Bens, senior associates Jess Hogan and Aad Oomen, associate Laura Smit all based in Amsterdam. DLA Piper's UK team consisted of senior associates Robert Newman and Satnam Sahota, supported by trainee Samantha Bradley, all based in Birmingham.

Charles Cook said of the deal, “This is a hugely important step for Dechra which has emerged as an outstanding success in the sector in recent years, and we look forward to seeing that success continue. This project is an excellent example of DLA Piper’s ability to field a multi-jurisdictional team in order to assist our clients in executing their most important transactions.”

Last year saw ten year deal activity in pharmaceuticals top $2.4 trillion, and 2018 seems likely to see this spike continue. In health more generally, earlier in the year, DAS Health acquired Integra to strengthen the firm’s healthcare practice. Soon after, US life sciences experts Insight were bought up by Precision Medicine Group, suggesting that the health industry as a whole is likely to see a bumper year in terms of M&A value creation.

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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.