Disposing and acquiring. How to get it right

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Whether you have an underperforming subsidiary or you’re looking for growth, the market is ripe for disposals and acquisitions. Finance specialist David Wilton explains why – and how to prepare for both.

It’s a competitive market right now, one full of pressures – but also opportunities. While a few years ago there was a degree of tolerance and patience from shareholders, according to David, that’s just not there any more.

“They want every possible pound of value out of a company,” he says. It’s all about the now and maximising shareholder value. To do this you need to be selling what the customer wants at a price it’s prepared to pay. Shareholders are investing in corporates as they can’t get a good rate of return from the banks – increasing pressure on companies.

“Technology and analytics today are so advanced that shareholders can easily study KPIs and see what’s happening. If a subsidiary is performing averagely within the group or industry as a whole, it’s so much more visible – and you can’t get away with a business just pottering along. It’s a much more demanding environment.”

It’s an ideal time to dispose of non-core businesses or make an acquisition.

Act now
Shareholder pressure, a cautiously optimistic post-Brexit market and an abundance of cheap cash means companies should be reviewing non-core subsidiaries and divisions, and reinvesting that money elsewhere. So if a business no longer looks like a good fit, isn’t performing as well as the rest of the group and is a disproportionate drain on management resources, the message is clear: act now.

“Running a business today is a bit like being a football manager,” says David. “You can’t say we’ll get the results in due course, investors want them now. So, not only is it about selling non-core assets, it’s also about growth and acquisitions. But if you are acquiring, make sure you focus on growth industries and services that complement your existing offer.”

The right resource
Whether you’re buying or selling, the key to success, explains David, is having the right people in place. While large multinationals might have a dedicated in house M&A team, many organisations simply haven’t got people with the experience or the time to handle complex deals. And you need to have a good adviser team ready to act for you.

“If you’re selling, it’s about being able to present the business you’re selling in the best possible but realistic manner that gives you a better value. So the figures might show that it made £10m in profit, but adjust it for the group costs you’ve allocated to it and you’re able to show that it can make £12m.

“Also, it’s not just about striking the best financial deal. You have to actually be able to successfully separate it from your group; removing those integrated IT, business and account systems so it’s a coherent, functioning business that doesn’t fall over the minute you hand over the keys.”

A clear strategy
David adds: “If you’re acquiring, you need a different set of skills. You need a clear acquisition plan, considered list of targets and strong strategy that’s accepted by your stakeholders. You must do your due diligence and know what you’re going to do with the business once you have it.

“A large majority of acquisitions that go wrong do so because either there’s no integration plan or, worse still, the plan doesn’t get delivered by integration experts.”

If you don’t have the expertise, hiring a consultant or interim is one solution. Finding someone with the right level of seniority and experience is easier than ever in today’s connected world. Bringing in a flexible resource for a short time to handle the planning, project management and integration frees up management time and ensures a much higher degree of success.

Regardless of whether you manage sales and acquisitions in house or bring in a dedicated resource, simply letting things tick over without reviewing your strategy could leave you at a significant disadvantage. If you’re going to act, now’s the time, because as David says, “as previous economic recoveries have shown, the next five years will determine which businesses will survive.”

Summary

  • Many companies face increased pressure from shareholders for strong returns.
  • It’s an ideal time to dispose of non-core businesses or make an acquisition.
  • If you’re acquiring, stick to growth markets and complementary services.
David Wilton
David Wilton is a chartered accountant and former investment banker with 20 years’ experience. More recently he has been a finance director with both plc and private equity-backed companies and has vast experience of mergers, acquisitions and major corporate restructuring. He now works as an executive-level interim manager on specific projects.

Williams Bain
Williams Bain are a specialist executive interim management provider that delivers main board sponsored initiatives and programmes as well as one-off events. We can discreetly effect the disposal of non-core businesses and have a track record of realising the synergy savings from acquisition integrations.