Corporate finance activity is the key to realising the value of many businesses, from mergers and acquisitions (M&As), due diligence and raising funds, to valuations, structuring deals and management buyouts (MBOs).
At Old Mill we see our role being to facilitate the right deal for you, your team and your business. We recognise that the ‘right deal’ may be about much more than just the financial returns. By working closely with you and gaining a deep understanding of both your business and your aspirations, we can advise you on the best ways to achieve those objectives.
We combine the advantages of a dedicated corporate finance boutique with access to a full range of support services from the wider Old Mill – which allows our advice and support to be tailored to meet your specific needs.
Understanding the potential value of your business ahead of any sale provides you with crucial information. The sale of your business needs to meet your personal expectations and give you adequate wealth for your future plans.
We get involved with sales at all stages.
For many owner-managers, legacy is a key motivator and the idea of selling the business to a competitor or corporate acquirer doesn’t feel right. Passing the business on to the existing management team is a way to preserve its independence and secure its future, whilst realising the owner’s wealth.
In some cases, an MBO might be the only realistic exit-route, if the business is of a size or in a market space where attracting a trade buyer is unlikely.
There are a number of potential benefits because the buyers and sellers already know one another and the ins and outs of the business. This should (in theory at least) make for a simpler negotiation and deal process.
However, there are potential pitfalls. A management team may struggle to replace all of the roles undertaken by a hands-on founder and there is a big difference between an employee mindset and an owner mindset.
Raising finance can be challenging. The team rarely has the funds to contribute significant capital to the deal and there are limits to how far lenders will go for unsecured cash flow lending. A management buy-out will therefore typically involve a substantial element of deferred payment to enable a deal to happen. Whilst this remains outstanding, the seller is dependent on the management team to run the business successfully to pay them out.
Nevertheless, management buy-outs remain a popular and effective means for business owners to realise wealth and to enable management teams to grasp the opportunity to build business wealth of their own.
We advise on either side of the MBO process: helping sellers to structure the deal and manage the process; or advising the management team on their business plan, raising funding and guiding them through the deal.
Making an acquisition isn’t something to be taken lightly. Done right it can be a powerful catalyst for growth, done wrong it can be detrimental to both businesses. The below areas are key to planning for a successful acquisition process
We can help as little or as much as is required. The key areas we can add value and assist in your acquisition process are.
Mapping The Market
We have access to multiple platforms and databases, allowing us to quickly map a market and create a fully bespoke target list. Along with flagging all active opportunities in the market
I’m sure you receive more than your fair share of approaches asking if you want to sell. By placing Old Mill in the middle of you and a target, you benefit from our reputation and network, allowing us to unlock opportunities that on your own might be harder
With our sector knowledge on multiples and modelling skills, we can quickly and accurately ascertain a businesses value on the fly, insuring your time isn’t wasted on opportunities that aren’t viable. We can do this in a very short time using a quick and dirty model approach.
Negotiations / Structuring The Deal
There is nearly an infinite number of ways to negotiate and structure a transaction. Cash on completion, deferred payments, earn outs and transfer of shares, are just a few of the mechanics to be considered. We will insure we position your offer to be as attractive as possible while managing risk.
Thanks to our knowledge we know exactly where to look for skeletons. We can advise on when its valuable to spend the time and when its not, keeping momentum up and not letting the deal get caught in minor details.
Sale Purchase Agreement Creation
By working in conjunction with your lawyers we can insure peace of mind, leading to a smooth integration of the business.
When you are looking to make an informed decision about investing in a business, due diligence should give you the reassurance that you really are getting the deal that you expect.
Traditional Due Diligence may be criticised for giving many pages of facts but little insight and no opinions. We favour concise, issue-driven, reporting, backed with valuable advice and practical recommendations.
Good financial due diligence should
Employee ownership covers a range of structures and levels of participation:
At one end of the spectrum are share option schemes. Not immediate ownership, rather the opportunity to acquire shares in the future at today’s price. If the company’s value has grown between now and when the shares are acquired, then the option-holder gets that benefit, which is the intended incentive effect of an option scheme.
Similar, but with actual ownership, some employees could acquire shares directly, giving them participation in dividends and capital growth. There are tax consequences associated with the acquisition of securities by employees and it is important to establish the market value.
A management buy-out (see separate section on this topic) is a form of employee ownership, where a small number of the employees acquire control.
Full employee ownership is achievable through an Employee Ownership Trust structure (EOT). Structurally, it has similarities to a conventional buy-out, except that the holding company acquisition vehicle is replaced with a Trust. The EOT is formed for the benefit of all current and future employees of the company and holds the shares on their behalf. EOT has tax advantages, as qualifying disposals to EOT can be free of Capital Gains Tax to the sellers, and employee beneficiaries of the trust are able to receive an annual bonus free of Income Tax. As you would expect, there are limits and detailed qualifying criteria for these benefits. There are many attractions to employee-ownership, but as a relatively new type of structure, the lending market is not yet fully developed and raising external borrowing to withdraw as much value as possible up-front can therefore be challenging.
Value is key on the agenda for many shareholders, and at Old Mill we recognise that value can mean much more than just a headline figure.
By working closely with you to understand your business and objectives, we can provide independent expert analysis and understanding behind the figures.
There are many situations where the need arises to reliably value a business, particularly when it comes time to realise that value for the shareholders.
Old Mill’s advisers can assist in many of these situations, including:
Financial model is a wide-ranging term, covering simple ‘back of the envelope’ style calculations used day-in, day-out by accountants and executives everywhere, through to the more complicated discounted cashflows used by traders and external investors to support their decision making.
These models all have one common purpose however – understanding. Whether this is for budgeting, growing a business organically or via acquisitions, models provide insight and understanding, enabling informed and sound decision making.
At Old Mill, we will work to understand your business and objectives, and can produce detailed financial models for your business. Perhaps more importantly, we can provide expert analysis and insight in a clear concise manner, cutting through the jargon.
Our advisers can assist in producing models for a number of purposes, including:
Funding is necessary at all stages of a business’ life cycle, whether starting out, managing growth or making an acquisition.
The types of funding available are almost as numerous as the reasons for needing it, ranging from high street banks, secondary lenders, asset finance specialists; through to crowdfunding, business angels and venture capital.
The funding selected should match the purpose, i.e. use a long-term facility for a long-life asset; a flexible facility for working capital; and so on.
Not every need can be funded with borrowing. A suitable risk profile for debt is demonstrable recurring cash flows to repay the debt. That clearly isn’t the case for a new or uncertain venture or development; this is an equity risk and needs an investor not a lender.
Perhaps counter-intuitively, it can be easier to raise large sums than small, because the market is more developed at the higher level and lenders / investors can spend the time and money to really interrogate the plan; something which isn’t viable on smaller amounts.
There is a relationship between risk and cost. A fully-secured loan with strong stable cash flows will attract a lower interest rate than unsecured riskier debt.
Sometimes, it will not be possible to find a lender or investor to raise funding, in which case your plans may need to change.
Our team invests time in building relationships with the main providers of finance in our markets so that we are able to have initial discussions to shape a deal into a workable proposition before progressing to application. There are too many funders for us to know everyone, so we also maintain relationships with online funding platforms and specialist brokers.
You have successfully made an acquisition or sold your shares. Congratulations! Now what?
For sellers, you might be remaining in the company and have an element deferred consideration based on earn out targets. We can work with you to ensure these are monitored and achieved.
For buyers, there are a few more compliance needs which now need to be addressed but also the bigger operational piece. The first few months after an acquisition is the time when maximum impact can be made and it is at the integration stage immediately following closing a transaction where transactions can fail.
We can work with you to ensure the operational and structure aspects are planned ahead of the transaction completion.