Grant Thornton: One third of firms plan to grow via M&A

16 April 2015 Consultancy.uk

A third of businesses plan to grow through mergers and acquisitions (M&A) in the coming three years, research by Grant Thornton shows. The firm’s report explains that while the availability of available targets is key for a successful M&A market, the shift in the funding landscape making funding more accessible also plays an important role.

Professional services firm Grant Thornton recently released the latest results of its International Business Report (IBR), for which it surveyed more than 5,400 business leaders in 35 economies. The report foresees strong M&A activity over the coming years as underlying growth, interest rates, employment and availability of funding are positively perceived.

The number of businesses that seriously considered an acquisition in the past year grew globally from 29% in 2013 to 43% in 2014. All regions, except for Latin America, saw the intentions of their businesses to acquire other businesses grow. The biggest increase was experienced in North America and Asia-Pasic, which both saw an increase of 7%.

Acquisitions considered

The IBR shows that of the businesses surveyed, a third (33%) plans to grow through an acquisition in the coming years, up from 31% in 2013 and 28% in 2012. The biggest percentage of businesses planning to take this route is found in North America, where almost half (45%) plans to grow this way. A big portion of Latin American businesses (38%), which saw a decline in their acquisition intentions in 2014, are also planning to acquire other businesses in order to grow in the coming three years. In Europe almost a third (32%) and in Asia Pacific almost a quarter (22%) is considering this option.

Planning to grow through acquisition

 

Changing funding landscape
According to the consulting firm, one key element of the active M&A market is confidence in the ability to fund the transactions. Earnings remain the main source of funding for the coming three years, with 62% of businesses planning their business growth with their earning. However, the IBR indicates that businesses are increasingly confident to find funding through banks, with more than half (57%) of businesses highlighting this option, up from 48% in 2013. Other methods of financing include private equity (21%) and public listing (9%); both slightly up from last year.

Financing growth in business

Commenting on the results, Mike Hughes, Global Service Line Leader of M&A at Grant Thornton, says: “The results confirm that the M&A market has rediscovered its vigour, with the most dynamic businesses embracing acquisitions as a vital growth tool […] Historically the transaction market has been relatively cyclical but according to our research we may well now be at a point where the objectives and valuations of buyers and sellers are broadly aligned.” 

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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.