The number of Mergers & Acquisitions (“M&A”) completed within the UK Oil & Gas market during 2016 was significantly lower than we have seen in recent years as uncertainty throughout the sector remained. 2016 was a year of adapting to the lower oil price and for most businesses this was achieved by reducing costs. However, confidence is gradually returning and we are seeing more corporate buyers and investors actively looking for acquisition opportunities.
Large corporates need to deliver continued growth to satisfy investors and cash rich companies are seeing little return on their money in the bank. The solution in many cases is to make a strategic acquisition and we expect to see an increase in M&A activity during 2017.
For business owners who have been able to react quickly to the changing conditions and continued to trade profitably during the downturn, now could be the right time to consider a sale. It could take some time for profits to return to levels seen previously but the right business will still be very attractive to investors and this creates an opportunity for owners to realise value now.
A well run disposal process will always increase the chances of a successful sale and maximise value. So if you are considering selling your business, here are some tips to ensure a successful outcome:
Engage professional advisors – experienced financial and legal advisors should be appointed at the outset to structure the deal and project manage the transaction; allowing the management team to focus on running the business and maintain strong trading performance.
Do your diligence on the purchaser – before investing considerable time in meetings with the purchaser, providing confidential information and negotiating terms, ask whether the purchaser is able to deliver what they say they will.
Ensure information provided is accurate – purchasers will use information provided as a basis for their offer. Any adverse adjustments identified during due diligence will usually lead to the initial offer being revised downwards while any positive adjustments will not necessarily result in an improved position.
Don’t get too close to the purchaser – it is important to maintain an arm’s length relationship with the purchaser until the deal has completed. Too often we have seen transactions where the purchaser will look to get very close to the vendor during the process and use this relationship to negotiate directly with the vendor rather than via their advisors.
Deal with potential issues early – it can be too easy to ignore potential issues and hope that they will go away rather than deal with them as they arise. This can lead to deals collapsing late in the process when issues are finally discussed and neither party can reach an agreement.
Consider the most efficient tax structure – most purchasers are prepared to be flexible when structuring a deal to ensure that the vendor can take advantage of any tax benefits available. Therefore, it is essential to seek specialist tax advice and structure the deal efficiently to minimise tax and any associated risks.
Avoid deal fatigue – finally, to ensure the transaction is completed within a reasonable timescale, ask the purchaser to produce a timetable detailing all key stages of the process up to completion and then monitor this closely.
Brian McMurray is the corporate finance director for Anderson Anderson & Brown LLP.
The Corporate Finance team at Anderson Anderson & Brown LLP (“AAB”) have advised on over 500 transactions with a combined deal value of over £5bn. For more information on how AAB can assist you or to arrange a free consultation, contact Brian McMurray on 01224 625 111 or at brian.mcmurray@aab.uk.