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Thinking about growth or exit? Explore the world of mergers & acquisitions (M&A)

For many business owners, growth or exit means investment or sale. Typically, owner-founders are so passionate about the organic growth of their business, and working within it, that looking further forward into the horizon and considering an exit can be far from their minds.

The world of mergers & acquisitions (M&A) conjures up thoughts of big boardroom deals and City slickers, but in fact, it is a fundamental part of the lifecycle of your business, so let’s get to grips with what it’s really all about.

The reality of exit

Conversations with business owners about the long-term future of their organisations typically give rise to one of four responses:

1. Fear of handing over the reins
2. Concern about who to hand over to
3. Belief that their business is not unique enough to attract a buyer or simply not knowing where to start
4. Life event which has resulted in the desire to exit quickly

The right advice can help you navigate your unique situation and develop a plan to achieve the desired outcome for you and your business.

Recognising an opportunity for growth
M&A isn’t all about exit. More often it’s about recognising an opportunity for growth via acquisition, perhaps through the purchase of a competitor or complimentary supplier to expand your proposition.

Despite the opportunity potential, it can be hard for business owners to know where to look to obtain the right support and achieve the best deal. For many, this is new territory and often traditional advisers lack the expertise needed to navigate the deals landscape.

The role of insurance
Our M&A team will support you through the life journey of your business. As your business changes, your risks and exposures change, requiring your protection to adapt and evolve accordlingly, and never more so than during a transaction.

The more robust and ‘deal ready’ you are, the smoother the deal will be. It can also protect the EV (enterprise value) of the deal if you are selling.

Common M&A oversights business owners should be aware of
Business owners looking to sell often fail to realise the time needed to get ready for such a deal. Unfortunately, some also misunderstand that they may in fact be tied to the business under an ‘earn-out agreement’ after the sale is completed – sometimes running into years after a sale.

That earn-out figure and length of time can be negotiated, based on how robust the business is. Therefore, it is important to have good protections, people and processes in place long before the transaction discussions begin.

What it means to be ‘deal-ready’
A business owner should prepare for such a deal from all sides – a health check on the business if you like. This should include the basics, such as:

  • demonstrating that the business is performing well financially to maximise value
  • establishing internal management structures to support the growth of the business
  • ensuring client contracts, leases etc are all up to date
  • ensuring your data is clean and tidy

This presents the best possible view to any potential acquirer and therefore protects the enterprise value.

The same can be said from an insurance perspective. Ensuring that the business has all necessary policies, warranties and indemnities, D&O (directors’ and officers’) cover where required, key person or shareholder protection in place, could protect the value of a transaction. This in turn can avoid an acquirer seeing an opportunity to price chip the enterprise value.

The importance of insurance due diligence
When looking at a target company for merger or acquisition it is imperative full insurance due diligence is undertaken to highlight any exposures or hidden costs that may arise going forward. The due diligence exercise is conducted alongside financial and legal due diligence under a non-disclosure agreement in a short period of ‘exclusivity’ between buyer and seller and helps negotiate a fair deal for both parties.

Considering a merger / acquisition?
Our dedicated M&A advisory team has collectively acted on over 150 buyouts, disposals, listings, and mergers and is well placed to support the wider corporate finance and investment community.

For more information, visit our M&A webpage.

Making sure your business is protected if something unexpected happens
If you’re not looking to exit, are you prepared if something happens to your or one of your fellow business owners? In essence, do you have a Company Will? Find out more about securing your company’s future with shareholder protection.