There are signs that the oil and gas market in Aberdeen is at last beginning to pick up as the spin-off from large contract awards starts to trickle down to the smaller companies.
However, companies considering mergers or acquisitions need to be more savvy about how they present themselves to prospective buyers and, most importantly, the banks.
Over the last three to four years, some of the heat has gone out of what was an overly-hot mergers and acquisitions market, with companies now taking a more realistic view of their worth. However, while values have come down to arguably more sustainable levels, the M&A market is still surprisingly slow.
It is becoming increasingly important for sellers to make their business as attractive as possible to potential buyers or investors.
Having a rounded management team, a proper business plan and reliable financial information is massively important.
The more attractive your company is to a seller, the quicker you can progress the deal and the more likely you are to realise the value of your company.
With banks now scrutinising the figures from every angle, it’s crucial that a company’s numbers not only add up, but are balanced and realistic.
With transactions taking longer, it’s not uncommon to present two or three sets of actual results during a transaction which can be compared to the forecasts initially presented.
Credibility can be at stake if any of these are worse than those forecast.
You might have beaten your numbers significantly one month and be putting on good year-on-year growth, but even a marginal underperformance against forecast the next month is what potential buyers focus on.
It’s important to understand how investors, and especially banks, look at things. Having spent the last 15 years focusing on transactions, four of which were in a major bank, I have learned the different ways different investors look at things.
Equity investors look for the upside. Banks are primarily concerned about ensuring their debt is repaid, so focus on the downside.
It is imperative to understand the agendas of all parties so that a business is presented in a way which appeals to all types of investor or backer.
For many SMEs, which make up the core of the Aberdeen market, the mergers and acquisitions process is too long and a lot of them are giving up.
There is concern as to how they will leverage the funding they need to develop products to take to market. Some have other options such as joining forces with competitors or exploring vertical or horizontal integration but the question remains: how do they do that when funding remains tight.
That said, there is still a lot of optimism about Aberdeen’s North Sea oil and gas market. If companies position themselves in the right way to get the financing they need then I believe they will be successful.
Tom Faichnie is a partner with Campbell Dallas