Held as part of a day of panels looking at cash flow management, current affairs, the use of data in decision making and funding options in today’s market, the session cleared up some misconceptions regarding M&A and provided guidance for a room full of interested FD delegates.
Andrew Clatworthy, finance director at Saga, Treatwell CFO Benjamin Leaver and Richard Sanders, partner at Catalyst, all brought unique contributions to the panel – backed up by years spent closing big deals.
Some 25 years of work in the corporate finance advisory space has led Sanders to conclude the internet has had a big impact on deal origination. “Before, you’d have to rely on having a global reach to source targets. Now, through relatively simple processes you can sample the population before you’d want to speak to them,” he explained.
“However, were are constantly surprised how often we talk to people who have never spoken to a client of ours, even those which have a dedicated M&A team. With a bit of rigour it should be relatively straightforward to identify businesses that may be of interest to you.”
Leaver has been part of an executive team at Treatwell that have closed a number of interesting acquisitions over the last few years. Backed up by a sizeable equity investment, the hair and beauty salon marketplace has moved from only having UK operations to being present in ten European countries.
He said: “We have been lucky in some ways, as we’re the biggest player in the market so identifying targets hasn’t been a problem. Given our profile, it’s often been a more qualitative process – working out if the teams will be a good fit. It’s key to think about not only where an acquisition will get you in 18 months, but also the next 5-10 years.”
As a word of warning to FDs thinking about going acquisitive, Saga’s Clatworthy warned it is a high-risk strategy if not done properly. Engaging with the right advisors is key, he stated, as is knowing clearly what you want to buy. “It’s easy to understand assets, the difficult is in liabilities,” he noted. “All the due diligence in the world of the balance sheet will not find everything.”
This sentiment was echoed by Leaver, whose last acquisition involved the purchase of ZenSoon – that deal less than two weeks after it bought Dutch competitor Treatwell for $38m. “Due diligence is one of those things that makes you feel a lot better about proceedings, it can tick many boxes along the way.
“But my background makes me more risk averse in some ways. When you walk into a business you’ve bought on day one, you end up finding out much more than you did up to day one. If you know 80 per cent of what you’re getting in to you’re doing well, as long as that 20 per cent doesn’t have all the problems in it.”
During 2015, the total number and value of successful domestic and cross-border mergers and acquisitions involving UK companies continued to show low levels of activity compared with those seen before the 2008 to 2009 economic downturn. It’s evidence that executive teams see significant value creation in M&A, it just comes down to identifying the right targets and having a pre-planned strategic approach so the deal doesn’t fall over or cause problems when it comes to integration.
Sanders told the room of over 150 FDs and CFOs that the corporate landscape has learned a lot from the private equity market in terms of how it looks at transactions. More and more buyers are mirroring private equity structuring, getting vendors to put a little skin in the game for example. “Sharing the risk profile is key for integration,” he said.
Clatworthy has experience gained at big banks, FTSE 100 firms and professional services, prior to joining Saga, is a firm advocate of “owning the numbers yourself”. With a lot of ego involved with acquisitions, it’s a bit like driving and sex, he said – most people think they know what they are doing.
“You have to take responsibly for what you are doing. You [FDs and CFOs] have a day job, but you’ll blamed if the acquisition goes wrong. So you need the right people, and remember it’s not just a financial exercise. I’ve worked on M&A transactions where they’ve had people crawl through rubbish bins [looking for hidden information].”
Kindly supported by World First, Bupa, Lloyds Bank, Corporate Traveller, Director Bank, FCM Travel Solutions, Webexpenses and Wells Fargo, The FD Surgery also included the results of the FDs’ Satisfaction Survey.