26 October 2012
Press ReleasesJames Cowper Kreston Corporate Finance ('JCCF') recently advised on the sale of a technology company. The deal is not yet in the public domain so its details must remain confidential but some generic points illustrate the value of appointing good advisers.
We were approached by the business who had received an unsolicited approach from a customer which wished to acquire it. The potential buyer had set out detailed terms including a very short timetable to completion – 4 weeks!!
Our potential client had, to that point not been looking to sell but was interested in the offer as he felt the value offered was reasonably full and the two businesses made a good fit strategically with opportunities for management and staff to be fully engaged with the combined business post acquisition.
Our brief was to:
Our analysis of the offer suggested that it was indeed a good offer but that the terms of payment could be enhanced significantly. Our client’s business was growing very rapidly and due to a shortage of skills in the market, it was highly likely the business would continue to increase profitability for some years to come.
Our approach was to focus on improving the earn out rather than the initial payment, as this would be an easier “give” by the buyer. Consequently, we negotiated an increase in the multiple applied to the earn out EBITDA, a removal of the cap on the earn out and reduced the earn out period from 3 years to two years.
In order to facilitate the short time scales, we also anticipated the buyers due diligence process and built a data room containing all the documents relevant to the buyers. In addition to speeding up the due diligence process, this approach meant that the buyers staff did not have direct access to the business and avoided the disruption and uncertainty that such activities can cause to the sellers business and staff. We reviewed the key information before placing it in the data room and were therefore able to present information in the best light and as opportunities rather than weaknesses.
Finally, it was clear that the buyer was used to purchasing businesses, who themselves did not employ advisers. As a result the first draft of the purchase agreement contained some clauses in regard to the calculation of cash free debt that were very disadvantageous to our client. Our experience allowed us to negotiate a complete reversal of this situation saving approximately £500,000 in the process. Despite the due diligence process revealing a few weaknesses in our clients business, the deal was completed on the terms contained in the heads of agreement.
After completion our client commented:
“JCKCF’s input to the transaction was excellent. The transaction concluded extremely quickly and their hands on approach to solving any issues and ability to push the process forward was brilliant.”
