Mergers and Acquisitions Update

Although a recent report claims that UK Merger and Acquisition (M&A) deals fell by more than 70 per cent in volume terms between Q1 2008 and Q1 2009, largely due to the unavailability of commercial finance, there are still a considerable number of commercial deals taking place.

Much of the current M&A activity involves the purchase of insolvent businesses or the assets of insolvent businesses. In such cases, the low prices reflect the increased risk of buying assets from administrators and the like, who will give no guarantees concerning the assets purchased – not even a guarantee that the insolvent business owns the asset(s) being purchased.

Where businesses have parts which are viable, ‘pre-packs’ are the order of the day, with the viable part of the business being split out and sold to a new company, often one largely or wholly made up of the previous owners and/or managers of the insolvent business.

There are certainly bargains to be had and the stumbling block is often the impossibility of finding the external finance to swing the deal. In such cases, companies with a strong balance sheet and good profits record might well consider offering loan stock or an issue of shares, both of which can be done in a variety of ways, offering considerable flexibility. Such ‘paper for paper’ transactions mean that acquisitions do not require the degree of finance necessary for a cash purchase.

Contact us for advice on all matters relating to the acquisition or disposal of a business.