Friday, January 16, 2009

Not so easy to pre-pack businesses in administration

Following the outcry from creditors up and down the UK who have lost out in pre-pack administration deals, the government has announced a new code of practice for insolvency practitioners.

The problem was of course, that creditors were kept in the dark about who was taking over the business, what the terms were and what the extent of the insolvency pactitioner's involvement in the introduction.

Now administrators have to disclose full information to the creditors before the deal gets put through. The code outlines a whole raft of procedures that must be complied with by the administrators. They must be especially mindful of obligations and duties due to all creditors before the pre-pack administration deal is set. The government wants creditors to be provided with full facts on the case and why a pre-pack administration is in the best interests for all parties - so they can be satisfied that the insolvency practitioner has carried out his job properly, and not for the sake of expedience.

Friday, June 06, 2008

Let the Buyer Beware – warning signs to look out for when buying a business

Here are a few examples of what to look out for and how to assess the true profitability of a business from Nick Pritchard, at Transaxman ltd.
Don’t forget that the seller knows a lot more about the business than the buyer.

There are several ways in which a business in difficulties can be identified. For example reduced recruitment and training activity, delay of planned maintenance, missing a major trade show, closure of product or quality development teams and reduced investment in tooling or software. When companies are prepared for sale, if the business is in some difficulty, they may simply cease any forward expenditure or investment. Ongoing investment in a business is crucial in order to ensure growing profits. This is often the reason that the best businesses to buy are the ones that are not actually being marketed for sale.

How to arrive at the adjusted net profit
The two main types of adjustments that need to be made are, allowances for non-recurring items, such as a grant or a big debt and items shown as costs that are really a distribution to the current owners.

Standardising earnings
Restating results shows what the earnings of the business would have been on a standardised basis, as an indication to the future earnings. The valuation exercise is undertaken to establish how much a theoretical buyer would be willing to pay as a capital sum in exchange for the right to receive those future earnings.

More information on Let the Buyer Beware

Thursday, June 05, 2008

Be aware of TUPE regulations when buying a business

In the Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE, business buyers should know that they are not only taking on the employees, but also responsibility to honour all existing employment contracts and conditions of employment. This also includes disputes, tribunal claims and collective employment agreements.

The TUPE regulations apply whenever there is deemed to be a ‘relevant transfer’ of an undertaking. This applies to mergers, sale of a business by way of assets sale, going concern, or a change in franchisee among others. It does not apply to business transfers by way of share take-over.

More information on TUPE

Three methods of business valuation

1] Asset Valuation
This is an accounting-based approach that subtracts business liabilities from business assets to reveal the business value.
The complexity of this approach lies in deciding on what assets and liabilities to include and at what value to place them? Any asset that is not included on the balance sheet will not be accounted for in the valuation. The profits made by a company are not taken into account with this approach.

2] Discounted Cash Flow
The Discounted Cash Flow (DCF) approach is a technical valuation technique used with moderate to high cash generating companies. It works by looking at today’s value (at a given rate of return) of the accumulated profits of the business over a number of years added to the value of the business in today’s terms if it were sold at the end of this period. This approach is not easy to apply, in order to forecast the future cash flow of the business a full financial model needs to be prepared.

3] Comparables Valuation
This method attempts to extrapolate or interpolate the value of the business by using information collected on similar business sales in similar markets. This approach is the closest simulation of a true market-led valuation.

These are the most common valuation approaches used in the market. However there are many more, you need only go to half a dozen business brokers or valuers and ask them to determine the value of the company and to explain to you how they get to the figure.

More information on business valuation

Due Diligence guidence points

Here are some guidance points for running a due diligence process on a business you are planning to purchase.

Plan the process – Create a plan/timeline identifying who will be doing what. Stick to areas that are most likely to have any effect on the final sale agreement.

Employee issues – make sure that the due diligence process picks up any issues relating to the seller’s employees. Are any past or present employees litigating against the business?

Identifying issues - spot any issues as early on as you can so that the appropriate warranties and indemnities can be quickly put in place. Focus on larger issues first.

Work closely with the solicitor – lack of communication between the buyer and solicitor could result in the process failing.
Discuss key issues of concern with the solicitors.

Company culture is important too! – Ask your management to look into the target’s company. Compare the management styles and core values of your business and the target business

Collect information, before analysing - These are two separate activities within the due diligence process.

Don’t allow time to be an issue - be focused and don’t take shortcuts in order to reduce costs, you could end up spending more time and money over it in the long run otherwise.

More information on Due diligence tips

Wednesday, February 15, 2006

Danka Business Systems to continue to divest

Danka Business Systems, the British distributor of office equipment, will continue to consider the divestment of non-core units. Danka CEO Todd Mavis, has said that a key objective this year 'is to focus on the more profitable aspects of our business and to divest ourselves from the non-core, non-strategic and non-profitable.' Danka has a market capitalisatin of USD 103.91m.

[more acquisitions]

Wednesday, November 09, 2005

Argenta Discovery looking at float or sale.

Argenta Discovery, the Essex, UK-based drug-development business, is considering a sale or flotation. Although chief executive Chris Ashton said the privately-owned company was not for sale, he confirmed bankers had been hired to consider options. The business is focused on respiratory drugs which have drawn the interest of giants such as AstraZeneca and GlaxoSmithKline. Argenta investors include MVM, ABN Amro and 3i; the company earned �8.5m in revenues from carrying out research for other parties.

Friday, November 04, 2005

Gartmore having strategic review

Gartmore, the UK fund manager, may soon be up for sale. Owner Nationwide has hired Morgan Stanley to look into strategic possibilities which may include a sale or flotation. US insurance business Nationwide acquired Gartmore for almost �1bn five years ago from Royal Bank of Scotland and, according to analysts could be worth that if sold to a rival or floated. BNP Paribas of France is rumoured to be a potential suitor. Gartmore could prove attractive to asset managers and banks outside the UK, particularly for its hedge-fund and distribution capabilities.

Wednesday, October 26, 2005

Alea Group, the ailing London-listed insurance business that is up for sale, could be sold in pieces, according to a report in The Deal's Auction Block. Alea, which is based in Bermuda, has gross premium revenues of almost USD 1.6bn.