Acquisition and Merger

Background

Our client had developed an IT business over a number of years that had grown to be profitable and stable.  Taking a strategic look at their industry, they recognised that they had the opportunity to take the next step to be among the top tier of service providers in their region.  They also identified that there were a number of industry participants that had strong teams but were never going to grow beyond good wages for their owners.

BPS Advisory was engaged to design a concept level transactional solution that would provide a win-win for our client and their acquisition target’s owners, and to conduct a comprehensive due diligence and business modelling exercise to confirm (or disprove) the merits of the proposed transaction before proceeding to contract stage.

Strategy and Solution

We met with the client’s Board to provide an engagement framework and agreed process and, after all parties had signed appropriate no-disclosure and non-circumvention agreements, commenced the analysis of the acquisition target.

We considered the target’s most likely business outcomes under 3 different scenarios and determined that they were unlikely to grow having regard to the existing owners’ appetite for further investment in the business, the existing marketing and sales skills within the business and the overall positioning of the business.  We also had a candid discussion with the existing Managing Director including his personal aspirations, both personal and professional.  This provided us with a baseline position upon which to develop a transactional solution.

Understanding that any deal must work for both parties to have any chance of success, our suggested solution involved clear metrics for the calculation of a delayed payment for the target business (thereby enabling the vendor to increase the value of his business using the resources of our client in exchange for a vendor finance deal), increased salary revenue for the vendor and a senior management role within the larger entity, rules for the application of revenues from strategic divestments to related debt (to ensure transactional integrity in case of a meltdown before final settlement) and an agreed growth strategy for the business overall.

Outcome

Both our client and the target vendor accepted our suggested process and signed a non-binding Heads of Agreement that paved the way for a detailed investigation and modelling exercise that involved senior staff from both businesses and one of our senior consultants to both facilitate workshops and to guide the process.

Once a final business plan had been mapped, we progressed to final contracts that incorporated a floor position for the vendor, metrics to be applied in a calculation of the final price and clear pathways for the vendor’s owners to progress to the next stage of their personal and professional lives.