30 Sep Helping them help you: The buyer’s role in a successful separation pre-deal
A UK listed engineering business brought BTD to help them acquire a global computer analytics business put up for sale by the parent firm. The buyer saw a unique opportunity to complement cutting-edge computer analytics with their current business offerings.
Unlike previous acquisitions the buyer had made, this deal was special. It represented a once-in-a-lifetime transformational opportunity to reposition themselves in the market as a digital business, to increase their capabilities, and cross-sell digital solutions to their customer base, and grow revenue like never before.
The seller was going through financial difficulties and wanted to sell quickly. The buyer, on the other hand, wanted to acquire the business and its IP as a standalone operation, and not be exposed in any way to the seller’s financial position post-close. For this, and a number of other reasons, it was a risky deal.
To compound the problem, the seller had almost no experience in separating or selling a business. Significant effort had already been expended in carving out financial statements and creating new tax and legal entity structures pre-deal. Beyond this, based on their own perception of what was required and external advice from their deal advisers, the seller believed there was nothing more to do.
The legal and financial carveout was completed. But! What about the people, technology, operations and above all, the IP?
This was making the buyer nervous! They wanted the business but saw plenty of risks they simply didn’t want to be exposed to.
The buyer was clearly frustrated, BTD was asked to work with the seller to map out the remaining operational carve-out work so the business could operate as a going concern once the transaction closed.
This was initially met with some resistance from the seller: “But we have already completed the carve-out!”
However, after intense work with the seller up-front, they quickly recognised how the business operations must be made sufficiently discrete for the transaction to take place: systems, IP, data, organisational accountabilities, physical location of staff and systems, and contractual obligations.
Once clearly defined, the work required to ensure that proper ownership and control could be achieved at sale was significant and was tightly project-managed within a few short weeks.
The carveout work was completed sufficiently for the buyer to take operational control at deal close. This effort resulted in significantly less risk for the buyer. The remaining separation work would be completed under a transitional services arrangement.
There are some incredibly important lessons here. If you are a seller don’t find yourself scuppering a deal.
- Think like the buyer. Understand their needs and wants. Reduce their risk.
- Carve-out a business – make it as future-ready as possible for the owner.
- Keep full control of the sale agenda – don’t let the buyer drive it.
- Use a Transitional Services Agreement for a fast and clean sales process. Don’t use it to transfer risk to the buyer.
And finally: more preparation – more value!