Seller Perspective - 8 Key Considerations for Accelerated M&A

Accelerated M&A can be an attractive alternative to both a distressed process (e.g. pre-pack administration) or a traditional M&A deal when seeking to realise value for shareholders in what are often deeply challenging financial circumstances.

Drawing from our experience advising on hundreds of M&A transactions and distressed sale processes, we have set out below our 8 key considerations for sellers that are looking to exit using the accelerated M&A route.

1. The right buyer

Identifying a suitable buyer in the UK or overseas is critical. The potential buyer must be able to move quickly and take a pragmatic approach to the risks inherent in accelerated M&A transactions while being willing to offer a realistic price for your business.

Appointing experienced corporate finance advisers with a wide network will allow you to be introduced to well-matched potential buyers. This will help make time and cost savings as the deal progresses. Additionally, your advisers will be able to manage expectations regarding pricing so that all parties are aligned from the outset.

2. Preparation

Where possible, preparation is key to ensuring a streamlined process and the best outcome. For example, start building up a virtual data room of documents early in the sale process.

A buyer is likely to be carrying out targeted due diligence, so focus your resources on areas that really go to the value of your business. For example, these would include your levels of indebtedness or it might be your intellectual property, commercial contracts or a particular regulatory permission.

Be aware that, on a share sale, a buyer will wish to conduct a thorough review of your company’s statutory books early in the process. You will save significant time and expense by getting these records in order and identifying any irregularities early (e.g. a poorly documented share history or failed share buybacks).

Make sure all sellers are aligned, particularly if you are part of a large shareholder base. Any disagreement should be identified early to ensure an accelerated M&A timetable can be followed.

Also consider whether an accelerated timetable is feasible at all. For example, if FCA change of control or competition clearance is required ahead of completion, then it is unlikely that an accelerated timeline will be possible.

Taking these steps will make the process smoother for all parties. It will also maximise value for shareholders and creditors by helping to avoid unnecessary delays or even attempts by the buyer to reduce the price.

3. Time management and availability

Time is of the essence in an accelerated M&A transaction and so requires the resources to move swiftly. Ensure that all relevant officers and advisers are available to adhere to a tight timetable, as delays could adversely impact negotiations and the transaction.

The amount of management time that the sale process involves should not be underestimated. A sophisticated buyer should understand the many commitments on management’s time particularly given the typically serious financial issues impacting your business. A buyer is also motivated to ensure that you are able to continue operating the business as well as possible during the sale process.

Agreeing key dates and times during which prolonged management input is required, as well as timetabling regular update calls, will aid this process.

4. Directors’ duties

Directors’ fiduciary and statutory duties should be a particular focus when a company is adopting the accelerated M&A route. If there is a potential insolvency at the end of the process, these duties will come under even further scrutiny. Therefore, it is important to ensure the directors keep their duties to the company at the forefront of their minds, take regular advice and keep a thorough record of decisions made and the rationale.

5. Communication

To help avoid the erosion of value and goodwill among key stakeholders, ensure that your communications to staff, suppliers and customers are consistent, clear and coordinated and confidentially address the particular concerns of each group at the appropriate time.

6. Third party dependencies

The need to obtain consents from third parties could have a devastating impact on the deal timetable if not prioritised. Ensure that communications are opened with customers and suppliers where their prior consent is required to the transaction (such as where their consent is required to a novation of a key contract or because of a change of control clause in a key contract). This dialogue should be initiated early as it is more difficult to control the timeliness of third parties, a particular risk when the deal has to be completed within weeks or even days.

7. Flexibility

The outcome of the accelerated M&A process may not be certain until the later stages of the deal, so keep an open mind where possible and remain flexible. If the buyer offers a reduced price for the business and a limited timetable to complete the deal, they are also likely to accept fewer warranties, more limited diligence and a potentially weaker covenant strength.

However, you should not feel that you have limited bargaining strength. A buyer will only be motivated to make an accelerated acquisition where it sees real value in your business. It will also be aware that the insolvency route (with its own advantages) is always an option. Therefore, if the timing is right, you should stand your ground on the points that really matter to you.

8. Insolvency considerations

Appointing corporate finance advisers and lawyers with a strong track record of advising on accelerated M&A deals is essential. Crucially, we recommend using firms that also offer restructuring experience in order to avoid switching advisers part way through the process. At Freeths, we frequently integrate the expertise of our corporate lawyers and insolvency specialists from the outset of the accelerated M&A process to provide you with the most comprehensive advice whenever you need it.