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M&A Trends in Entrepreneurial Private Companies

While in the public company world bid activity levels during the first half of 2017 increased on previous years, what trends are we at MBM seeing in the entrepreneurial private company space?

Overall in the U.K., after a sluggish start to the year, activity has picked up, despite political uncertainty such as the Brexit effect and other geo-political events. Favourable exchange rates have created opportunities for overseas bidders seeking to acquire U.K. targets. Some buyers are looking to diversify away from issues in their own core markets while others are seeking to complement or fill a gap in their service or product offering or address internal succession planning. Financial backers continue to pursue buy and build strategies and some bidders and targets seem willing to pursue strategic transactions despite the continued volatility in the world. There is significant competition for quality assets and Scotland’s strong technology-focussed and IP-rich businesses are an attractive target for acquirers. It is reported that M&A involving British companies accounted for one in ten e-commerce deals in the first half of 2017 and in fintech and IT, the U.K. received more funds from U.S. investors than any other European country.

In the U.S. market, activity in the technology deal sector overall remained relatively quiet; the slowdown was caused in part by an increasing shift towards smaller transactions and a decline in corporate-to-corporate transactions while the software sub-sector continued to dominate deals in terms of volume.

Trends that we are seeing in the local entrepreneurial space include:

  • Pre-sale preparation is key – Buyers are focussing heavily on financial, tax and commercial due diligence; make sure that your house is in order (including, for example, capital structure, contract management and contract renewal terms) before commencing a sale process.
  • International interest – We are seeing increased interest from foreign bidders, particularly from the U.S. and China. When dealing with international buyers we recommend an early focus on agreeing key commercial deal terms and the scope of due diligence process to identify any likely areas of difference before diving too deeply into deal.
  • Deal structures – We continue to see more share sales than asset deals. Earn-outs continue to be used frequently, usually over a 2 – 3 year period. There is a general desire to retain key personnel of the target company for several years post-sale often coupled with offering them a minority shareholding in the acquirer. Forms of consideration are commonly cash plus deferred and/or roll over share consideration.
  • Warranties and indemnities – Coupled with thorough due diligence buyers are seeking strong warranty coverage and indemnities where appropriate. Liability caps are generally in line with market levels and warranty insurance coverage can help to get a tricky deal over the line.

For further information please contact:

Tracey Ginn, Partner

tracey.ginn@mbmcommercial.co.uk

0131 226 8232

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