Mergers & Acquisitions: An FD’s Role in Preparing for Sale

The Art and Science of Mergers & Acquisitions

This article is the final interview of our series exploring the art and science of mergers and acquisitions. For this instalment, CMA’s Commercial Director Richard Dibden spoke with Adrian Povey, who was Founder/FD of Chamonix Estates. He discusses how the firm explored an MBO before agreeing a trade sale to New Milton-based First Port.

Chamonix Estates was founded in 2006; based in Hertfordshire the estate and property management company offered services across England and Wales.

Adrian started looking into financing an MBO to buy out his existing partner in 2018 and was getting close to raising the finance/structuring the deal in order to do so. However, in early 2020 trade buyer First Port, headquartered in New Milton, came to the fore. And so, the trade sale deal was completed at the end of 2020.

Roles & responsibilities

Adrian had always worked towards ensuring the business operated in a stand-alone manner and that it was self-sufficient without the two partners. Initially this is what brought both an MBO into play more, as well as reducing the necessary earn-out period for any trade sale.

Due to Adrian’s extensive corporate finance (CF) background – both from within practice and an international healthcare group – he was preparing the business for sale long before the sale process, namely:

• Ironing out any weaknesses within the organisation
• Ensuring a strong management team
• Ensuring planning and insights (P&L)trending in a positive light
• Pulling together an outline data room in advance of going to market

Throughout this Adrian really drew on his CF experience to manage the process. He says: “This involved looking at the financial modelling and ensuring absolutely everything ties up – if not questions are sure to be asked.”

As FD, Adrian’s predominant responsibility was to deal with around 80% of the due diligence (DD). Adrian says: “To give an idea of the extent of this, the legal DD was 76 pages of questions and financial DD was over 100 pages!”

Chamonix Estates worked with Meridian Corporate Finance on the business models required to demonstrate future pipeline and revenue expectations. For Adrian, this was confirmation that, as FD, you must understand the assumptions in the model and business projections. As he explains: “an inability to do so casts doubt on the rest of the information and numbers provided.”

Challenges overcome

As with any sale there was a degree of competitive tension, but this was not due to a multitude of prospective trade buyers but in making the choice between ‘Trade Sale vs MBO’.

The challenges, when they arrived were internal – for Adrian, the biggest challenge was his business partner, who was not involved throughout the process until the day before signing the contract. It was at this point that he wanted to alter the terms of the deal. Thankfully a compromise was made and this was quickly resolved to get the deal over the line.

Advice to FDs for their first transaction

What advice would Adrian give to any FD to prepare them for their first transaction?

Adrian says: “You must do all you can to ensure the numbers are hit during the time of the deal process. This transaction used the ‘Locked box’ mechanism where the price was agreed at the end of June on the proviso that financial targets were hit up to the Dec 2nd completion date.”

Understanding the motives for the buyer is also essential – Adrian advises: “As an FD, you need to understand the main driver for the acquirer – is it revenue? Is it profit margins? Is it to achieve market share and synergies with existing business?”

Thirdly, Adrian recommends that if you are buying a successful business, try to change as little as possible; “especially for the first 12 months and especially around the people and culture – as this is what bought the success and growth and made the business attractive to buy.”

When it comes to choosing advisors – FDs should choose wisely! It’s important to get the right-sized advisors for the nature of the transaction – this will ensure the appropriate fee levels, approach to the process and the appropriate level of advice. Adrian found that working with advisors that are corporate in nature, such as Meridian Corporate Finance, also makes the process and your role within it much easier.

Lastly, he recommends that finding advisors with a sense of humour is definitely beneficial – as a sale can be a stressful process!

An art or a science?

So, are mergers and acquisitions an art… or a science? Adrian concludes: “M&A is far more of an art than a science, in the sense there is more to an M&A process than due diligence. As an FD you need to understand how the outcome of the transaction will be greater than the sum of the parts, i.e. 1 + 1 must = 3 or ideally 5, so this cannot be solely a science.”

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