Acquisition/Merger of a larger company
Discussion
Hi all
Our financial services company is a year old and we've been approached by an established firm who's owners are looking to step back and retire. Same line of business. They like us as people and whilst could sell their firm for c £2m+ elsewhere, money isn't their main objective and they want their clients looked after, and clearly want to spend less time on the regulation side which is ever increasing. They're open to suggestions to how this could work as an alternative.
We're interested, but I don't want to take out a lot of debt to finance an acquisition where possible, though obviously an option. Are there other means that PH's are aware of that could work here? It's a good opportunity and if we can all win then great. I expect in practice that we would assume responsibility for the company but would need some sort of scaled share transfer potentially?
Any ideas welcome.
Our financial services company is a year old and we've been approached by an established firm who's owners are looking to step back and retire. Same line of business. They like us as people and whilst could sell their firm for c £2m+ elsewhere, money isn't their main objective and they want their clients looked after, and clearly want to spend less time on the regulation side which is ever increasing. They're open to suggestions to how this could work as an alternative.
We're interested, but I don't want to take out a lot of debt to finance an acquisition where possible, though obviously an option. Are there other means that PH's are aware of that could work here? It's a good opportunity and if we can all win then great. I expect in practice that we would assume responsibility for the company but would need some sort of scaled share transfer potentially?
Any ideas welcome.
There's any number of solutions but all will require the testing of the extent of this:
But if it were me, looking at what appears to be a sound business with a solid, regular client base and owners not too worried about squeezing it for all its worth, I'd be looking at outright purchase. Yes, you'd acquire debt but this should be entirely serviceable and you'd likely get a very very good deal - which don't come a long that often.
Raggyiom said:
money isn't their main objective
The simplest solution is to acquire a small share in the new company to an amount that's agreeable / affordable to both parties and increase that shareholding over time with payment to the existing directors linked to profits.But if it were me, looking at what appears to be a sound business with a solid, regular client base and owners not too worried about squeezing it for all its worth, I'd be looking at outright purchase. Yes, you'd acquire debt but this should be entirely serviceable and you'd likely get a very very good deal - which don't come a long that often.
You can acquire 100% of the shares and pay for part of them (depending on negotiation) via deferred consideration. This means the exiting shareholders get their money on the drip instead. If they like and trust you this is likely to be palatable for them. Unless they need the cash all on day one.
They are likely however to expect some cash on day one when the shares transfer to you.
As part of the negotiation, they may ask for interest to be paid on their deferred consideration, which can either be paid on an ongoing basis by the business, or rolled up and paid less frequently.
The deferred consideration can be a fixed amount or linked to the performance of the business post acquisition (or a mixture of the two), so this can give you comfort that if it doesn't do as well as they think it will, you'll pay less for the shares. But of course if it does better than expected, you'll pay more for the shares.
They are likely however to expect some cash on day one when the shares transfer to you.
As part of the negotiation, they may ask for interest to be paid on their deferred consideration, which can either be paid on an ongoing basis by the business, or rolled up and paid less frequently.
The deferred consideration can be a fixed amount or linked to the performance of the business post acquisition (or a mixture of the two), so this can give you comfort that if it doesn't do as well as they think it will, you'll pay less for the shares. But of course if it does better than expected, you'll pay more for the shares.
Went through a similar situation earlier in the year - we didn't proceed but my advice would be to get an NDA in place first and then get a look at the books and talk to key staff before you consider any mechanism for purchase. What the owners think is a couple of mill of value you may put a zero valuation against.
We also thought it would be a massive distraction and high risk to our own growth with all the complexities of integrating staff cultures and alike.
It's very flattering to be approached and a great sign that you are doing things well and making an impact, but take a cold hard look at the numbers and the various factors that count to drive the decision.
We also thought it would be a massive distraction and high risk to our own growth with all the complexities of integrating staff cultures and alike.
It's very flattering to be approached and a great sign that you are doing things well and making an impact, but take a cold hard look at the numbers and the various factors that count to drive the decision.
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