The M&A market in 2023 has been fuelled by corporates who have remained active in pursuing strategic M&A. A key theme that has materialised in 2023 is the re-emergence of pre-emptive approaches by trade buyers which we can foresee continuing throughout the remainder of 2023 and into 2024.
The drive of corporate M&A activity and preemptive trade approaches is largely twofold:
1) The UK continues to be an attractive market for overseas acquirers, influenced by many factors including exchange rates, access to new geographies, services, talent and technology. Overseas acquirers are therefore still keen to continue acquiring quality UK businesses.
2) Private equity investors have backed businesses to continue to seek bolt-on acquisitions which enhance scale, expand service offering and are highly synergistic. The strategy is for private equity investors to position these consolidators for exit.
Overseas corporates and private equity consolidators that are driving pre-emptive approaches are primarily seeking to circumvent future sale processes and in some instances, they are willing to pay tomorrow’s value today particularly if the synergy value is driven from an early stage of discussions.
For shareholders, there are many different factors to consider when being approached by a potential trade buyer for a pre-emptive discussion:
Reacting to an approach – your reaction to a pre-emptive trade approach will depend on a number of factors including your appetite for realising value through a sale at this moment, your current business strategy and your growth plan. If you are seeking to realise value for your business, it is important to consider next steps carefully as the party that approaches you may be the eventual buyer of your business and first impressions are important.
Appointment of an adviser – this is a crucial step which shareholders should consider at an early stage. Any decision to sell requires careful planning and preparation with your adviser, not just in terms of timing but also in terms of managing the approach to generate maximum returns for you as a seller and also to take the business forward.
Filtering approaches – whilst it can be flattering receiving pre-emptive approaches from trade parties, it is important to consider the credibility of such approaches with your adviser. This can include assessing the past acquisition history and funding ability of the party which makes an approach.
Control of information flow – it is vital to control the flow of information that is provided to a buyer that makes an approach. Not only could this impact current discussions, it may also impact future discussions if a sale does not take place now.
Driving the synergy case – during such pre-emptive approaches, it is very important to ensure that the business is positioned appropriately including understanding and articulating specific synergies with a buyer. This is a vital stage of discussions during a preemptive approach by a trade buyer, as it will help drive a premium multiple and valuation for your business. The synergy discussion needs to be embedded into the thoughts of a buyer from an early stage.
Keeping short timeframes – during a preemptive approach by a trade buyer, your adviser should aim to keep timeframes short to protect against a protracted discussion which could ultimately distract from the day to day running of the business, and impact momentum and value.
Over the last decade, Cavu have dealt with a number of pre-emptive trade approaches on behalf of clients. Whilst some pre-emptive trade approaches will ultimately lead to a successful sale, others will not and the focus thereon needs to be on your desire for discussions with other parties, potential marketing of the business and how to ultimately maximise your value.
We are currently working with shareholders of five businesses where a pre-emptive approach has been made and are therefore highly experienced and able to advise clients on key matters during such approaches. We would be would be delighted to meet to discuss how we could advise you in such instances and how we can help you achieve your goals.
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