Towers Watson: M&A industry booming in Q1 2015

02 April 2015

The first quarter of 2015 was the busiest for mergers and acquisitions since 2008, according to research from global consulting firm Towers Watson. For the months ahead, both in terms of deal activity and deal value the outlook remains bright.

The research – run in partnership with Cass Business School – reveals that the merger-wave that started mid-2014 is being continued. According to Steve Allan, M&A Practice Leader EMEA at Towers Watson, the trend follows improved market conditions, as well the growing drive from corporates to turn to M&A as a key strategic and competitive driver. “There is a prevailing trend of outperformance for acquirers and consistency across sectors, with acquirers in general outperforming their industry peers”, comments Allan.

As a result, the M&A industry has faced “unusual high activity” in the first quarter of 2015, says Allan, with in particular the top end of the market flying high. So far 41 large deals (over $1 billion) have been closed – an all-time high for the corresponding period – and in addition two mega deals, worth over $10 billion, have already closed.

Steve Allan - Towers Watson

From a geographic perspective, Asia-Pacific was once again the outstanding performer last quarter, followed by Europe and North America. The study also shows that the performance of North America is rebounding following a quarter of underperformance and a comparatively lower outperformance in the quarter prior to that.

Looking forward, Allan says it is “impossible” to predict how long the current M&A boom will last, pointing at the backdrop of economic volatility, as well as political uncertainty. “In the UK the election is coming up in May, which is affecting what has traditionally been the world's second largest market. Of course, the first quarter of next year will have similar external pressures and influences with the US election then on the horizon. With this in mind, the current picture is very much a moveable feast. But, for the time being at least market confidence appears to remain high.”


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8 tips for successfully buying or selling a distressed business

18 April 2019

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.