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

A number of commentators and advisers involved in corporate finance/M&A are starting to point to an increase in corporate transaction volumes.  I am very pleased to announce that a longstanding Mercer & Hole client – Pioneer Productions – was sold to the Welsh television production company Tinopolis. It is the one of the few ‘significant’ successfully completed deals that I have been involved in 2009. As with any transaction of this size there are many obstacles along the way, but in 2009 it takes additional motivation and perseverance to get over the finishing line. The tentative...

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The recent NESTA* report on Angel Investing makes fascinating reading.  The report gives some great insights into the successes and failures of Business Angel investors, and whilst it naturally focuses on ‘early stage’ deals, the principles can be applied to investments and acquisitions at various points of the business cycle. It is well worth reading the report, but there are some interesting findings I would like to point out now : "Those who perform at least some due diligence, even just 20 hours, experienced fewer failed investments”… ”Even a relatively small amount of due diligence helps...

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It is no secret that the number of corporate deals completing in 2009 is significantly less than previous years. There are many reasons for this (too many to list in this blog) – one important factor is the perception of vendors on the valuation attributable to their company.  If an entrepreneur has spent 20 years creating a profitable business, it is natural that he or she will wait for the right time to sell. It instinctively feels like the wrong time to sell - valuations across all asset classes are low in comparison to those seen in recent years ...

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In my last posting I gave the first 5 tips, which covered the stage before an offer for a business had been made. My next tips pick up after the offer is accepted. During Due Diligence : This is the stage where you test the assumptions you made when you put together your offer. 6. Appoint a good accountant and lawyer. The potential long term costs of not taking appropriate advice should be considered very carefully! 7. Go back to your offer and the assumptions you made. Ensure the information provided by the vendor can be verified and corroborated by other...

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It is an old adage but a good one: valuing a private company is an ‘art and not a science’. Given the same set of figures, it is very possible that all 19 Mercer & Hole partners would provide a slightly different valuation.  My tips for preparing a valuation, which should be accepted by both parties in a jointly appointed expert witness case, are: Use your experience of the SME market – It is no use trying to directly apply stock exchange multiples to private companies. Recent business sales in the local market should be...

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The credit crunch is having an affect on all asset prices, and this is bringing some first time buyers/investors into the private SME market. With this in mind, I thought I would ‘blog’ some tips for SME acquisitions. Prior to an offer being made : Buy the trade / assets, and not the shares. With a company you inherit its problems and therefore potential liabilities. There are also tax advantages to buying the trade and assets. This is particularly important for ‘distressed’ acquisitions. When reviewing profits for valuation purposes watch out for shareholders /...

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The government have now beefed up the Small Firms Loan Guarantee scheme. The EFG was set up to inject much needed liquidity into the SME sector, targeting viable / profitable businesses who have cash flow problems or are unable to fund growth. These problems have arisen from the scarcity of credit in the economy (triggered by changing attitudes to risk and availability of capital). The basic premise of the scheme is that the Government will guarantee lending to viable businesses (limited to 75% of the loan value – though under EU competition law it should only be 10%...that is another...

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I have blogged in the past on the methods used to identify suitable SME businesses. I spoke last week about ways of identifying acquisition targets for companies, and now I will focus my attention on individuals who would prefer to invest in – rather than buy – a business. These individuals are generally referred to as ‘Business Angels’, a more sanguine term than ‘Dragons’. The general approach taken by such investors is somewhere between the two. Investment in SME businesses There are two main options for an investor – do you invest in...

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In my last blog, I talked about the confusion and concerns regarding traditional investment methods, and the (current) low rate of return from cash. This may lead to a rise in SME transactions. People looking to buy SME businesses need to look at a variety of sources, as they are not listed in the Financial Times like stock exchange businesses! I will break it down into acquisitions and investments (my next blog): Acquisition of businesses In these purchases, the buyer will take a management role in the business (as opposed to an investment, where the involvement will range from ...

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With depressed asset prices, across all classes, traditional investment policies are being questioned. Cash? Interest rates are at an all time low, and are expected to decrease. The stock market? Not exactly a safe haven – too volatile and prone to the irrational movements caused by agitated city investors. Property? Possibly, but who knows where that will end up…?  A number of people are now looking at investment in private companies. Why? In my experience people traditionally invest in small businesses for one or more of the following reasons: Many...

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