Mercer & Hole’s Business blog - Buying or acquiring a business

The treatment of fixtures in buildings for capital allowances purposes has been amended from April 2012: Expenditure on qualifying fixtures must be pooled before a sale for the new owner to be able to claim capital allowances. Thereafter the purchaser and seller need to make an election to split the total proceeds between the building and fixtures.  The split is up to the parties to agree, as  long as it does not exceed the original cost. There are transitional rules, until March 2014, that permit claims by a purchaser where the seller has made no claim. ...

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Whilst it has been sad to see the affairs of a prestigious football club turn into a legal drama, it is very interesting to look at some of the ‘numbers’ which have emerged following John Henry’s acquisition. Chris Blackhurst in the Evening Standard suggests that Mr Henry paid a multiple of 8.5x EBITDA for Liverpool FC. As someone that looks at company valuations on a regular basis, I feel obliged to make a few comments: Current EBITDA multiples can range from anywhere between 0-100, but in my recent experience a large proportion of decent sized businesses...

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Reading the draft legislation on venture capital schemes ie investments by venture capital trusts and, more importantly for our client base, investments into companies qualifying under the Enterprise Investment Scheme (EIS), there is one apparent problem. You will recall that EIS delivers some generous benefits for investors in terms of income tax relief and capital gains tax exemption on the EIS shares bought, and also offers the ability to defer other gains.   However, the legislation proposed for the Finance Bill in the Autumn of this year debars relief under the EIS provisions where the issuing company could be...

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The Corporate Venturing Scheme (CVS) was set up to promote venture capital style investments for companies. It is comparable to the Enterprise Initiative Scheme (EIS) – which is for individual investors. The tax breaks were not quite as generous, but it did offer upfront corporation tax relief (20% of the investment) and capital losses could be offset against trading income. On the 31st of March 2010, the CVS’s ten year period expired and it has not been renewed. The CVS was not hugely popular, but it was used sporadically across our firm. I believe that any tool which incentivises investment...

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Cathy has written blogs in the past on how a redundancy package/payment in lieu of notice is taxed by HMRC. Whilst most people seek other employment, a sizeable number choose to set up their own business. There are some compelling reasons to start a venture while the economy stagnates: Better deals are available on rent, lower rates and other premises costs Other expenditure will be comparatively lower – such as advertising, set up costs and even staff Reduced competition as more established (and overhead heavy) businesses fail Potential customers are more motivated to look for better deals in a...

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One of the more prevalent corporate transactions over the last 12 months has been where one shareholder sells his interest in a company, leaving his fellow shareholders and the business intact. A shareholder buyout can be triggered by: retirement of one of the owners a dispute amongst the shareholders a desire to restructure a company to create two or more separate businesses The deterioration of the M&A market in 2008/2009 has meant that business disposals are more difficult to achieve, and the buy out of individual shareholders is becoming more popular for business partners that decide they will no...

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One of the many victims of the credit crunch and the resultant trading recession were the frequent Management Buy Outs (MBOs) that we had seen in the preceding years. In theory MBOs are a ‘safe bet’ – management know the business well and should up their game with the added incentive of equity. One of the features of MBOs before the credit crunch of 2008 was the increasing debt levels – particularly seen in the upper end of the sector. This meant that small reductions in profit and cash-flow, created substantial problems. In the last couple of years there...

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I have previously talked about the risks and potential benefits of buying a distressed company from an administrator. Such opportunities can generate substantial value for a buyer. Over the next year or so, you may be presented with opportunities to buy a business from administration. This could be a competitor, customer, supplier or a business with no connection to you. When an administrator is appointed to a company, he is obligated to maximise the cash realised for the assets available and must act in the interests of the creditors at all times. Due to the very fact that the company...

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There have been several predictions that the number of business failures will increase in early 2010. History indicates that insolvencies rise as the economy comes out of a recession, and that Q1 is frequently the time when owners run out of cash. There are therefore likely to be more financially distressed businesses being sold by administrators – offering a great opportunity for those with cash. Not all distressed businesses are basket cases – some can be well managed and profitable. One bad debt, legal dispute, missed payment or change in terms can push a company into cash flow difficulties which could...

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My previous blogs on the Enterprise Finance Guarantee (EFG) scheme created significant interest. The EFG has been a very emotive subject for the UK public, with many people feeling that the level of lending is insufficient. Much of the public anger is aimed towards the ‘bailed out’ banks (presumably because the tax payer feels they are a ‘part owner’). I believe the initial publicity of the scheme led to unfair expectations being placed on the banks. Some individuals appeared to think that the EFG represented free money for businesses. However I can not defend the lengthy...

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