Category Archives: Acquisitions

Adapt or die

Recent news is that BT is buying a mobile phone company – it looks like they will chose EE over O2

Those of us with enough grey hairs will remember that BT used to have a mobile phone business, and unless I am mistaken it was the business that formed the basis of what is now O2.

Elsewhere, there have been stories of BHP Billiton, the mining giant, splitting off those assets that are now not considered “core” to the remainder of the business. It so happens that BHP Billiton was created from the merger of BHP and Billiton, and the demerged companies will look very like the originals.

None of these changes or reversals necessarily means that the original strategy was wrong. When BT sold off its mobile phone business, the core business of providing telecom services was in a mess. They had pension fund problems, labour relation problems and were still struggling with the transition from a publicly owned business to a private company.

Merging BHP and Billiton created a mining giant that was able to dominate the markets and created great value.

The Times said
“BHP merged with Billiton in 2001 in a $58 billion deal. At the time, the rationale of adding Billiton’s assets was to create a fully diversified mining group with roughly equal earnings from aluminium, base metals, coal and iron ore. However, Billiton’s assets barely contribute to the group’s profits today, having been overshadowed by a decade of soaring growth in its iron ore, copper and coal businesses driven by China’s rapid economic expansion.”

The market has changed, so these businesses have changed their strategy. Your market has changed – have you changed your strategy?

If you don’t adapt, you may be following the dinosaurs to extinction

 

Don’t get deal fever next year – get real

In 2014 there will be a number of business owners who want to exit. Many of them would have liked to retire five or six years ago, but could not do so in the middle of the credit crunch.

There’s an opportunity for the smart business to take a step change in growth, but it is not one to be taken lightly.

Making a successful acquisition could transform your business; making the wrong acquisition, or failing to integrate it, could destroy your business.

Start with the plan.

Work out what kind of business you want to buy:

Is it a business with products you can sell to your customers?

Or customers who will buy your products?

Or is it providing a service that you need?

Then work out what you want to do with it:

Treat it as a stand-alone business?

Move everything under one roof?

Somewhere between the two?

When you’ve done that, then you can look and see what is out there.

Don’t get deal fever, get real.

“Marry in haste, repent at leisure” is the old saying. You might update to “Buy in haste, repent at leisure”

Get in touch for some free advice

Strategy or Tactics?

Many business advisors bandy around the words “strategic” and “tactical” but for me, the only real difference is the timeframe.

There will be times when you have to take a decision to solve today’s problem, but it comes back to haunt you at a later date.

It’s a bit like buying something you can’t really afford on a credit card. If you are not careful, you end up paying for it twice over (or more) by the time you’ve paid the interest.

A client of mine has been approached to sell his business, and I am helping him through the process and we are providing information to the buyer.

One piece of (quite important) information is the share structure and ownership of the business.  The MD and his wife are the majority owners, but two key employees (Nick & Bob) were given a small shareholding many years ago.

When the MD declared the shareholding, he included Nick & Bob as owning 5% of the business each, but when I looked at the accounts there were far more shares that he had declared.

Several years ago, when bidding for a large contract, a director’s loan was converted into share capital so that the business could obtain finance. 

The MD had forgotten all about that transaction. It had to be done at the time, his money was already committed to the business, and it didn’t matter to him.

But Nick & Bob don’t own 5% of the company each, they own 0.05%.

This business will sell for about 5 million pounds; Nick & Bob will receive a few thousand pounds instead of the £250k they would be entitled if they still owned the 5%.

If my client wants to do the honourable thing and give Nick & Bob the difference (I am sure he will) then taking into account the various tax implications he will be about 500k worse off.*

If, after taking the undoubtedly short term decision to convert that loan to share capital, the MD had thought through the implications for Bob & Nick in the longer term, there would have been a way to make sure they still had the 5% he had promised them.

So when the answer to the short term problem is obvious, and you just get on and do it, try to take a step back every so often & ask yourself the question

 “How will that affect me / us / the business in 3 years’ time?

*(Now I think I have a solution for this problem – I just need the corporate lawyer to check)