Dr McDeal title Bridging the gulf with overseas buyers

My business might be worth £12m. Is a company this size really going to appeal to overseas purchasers?

Small can be beautiful, even when viewed from a long way away. Ten years ago, I would have shared your concern. Then, international purchasers looking abroad for growth were very much focused on targets that gave them genuine critical mass. That meant deals with values of less than £20m rarely caught the interest of the international purchaser community. Today, the corporate world is a much smaller place and I would confidently expect to receive offers from foreign acquirers in 75 per cent of all cases, even with transactions as small as £5m. You should absolutely not be limiting a marketing exercise to just UK buyers.

So how do I identify an appropriate overseas purchaser for my business?

The key to identifying a highquality short list of overseas purchasers is a strong international research capability. Either you invest the time and resources to pro-actively identify buyers or you find a specialist adviser to do it for you. Livingstone Guarantee has been part of an international network of M&A advisers since 1993. Our team of research analysts liaises closely with colleagues in the Global M&A offices, gaining access to those overseas purchasers that domestic UK research may struggle to uncover. A typical purchaser research report will contain information on around 100 very relevant potential purchasers, of which 70 per cent will be based outside the UK. A short list of no more than ten will be put forward as the right strategic partners to contact.

How do I tell if a potential overseas purchaser will be seriously interested?

An overseas purchaser’s previous history of successfully completing UK acquisitions should be carefully assessed to determine whether that acquirer has a proven track record of dealdoing in the UK. The greater a foreign group’s existing UK resources, the smaller the acquisitions that it is likely to be prepared to consider. In the event that the prospective purchaser has not completed any UK acquisitions, there will be a learning curve for that party, which could introduce delay to the process or limit its interest in smaller deals. However, the fact that an overseas purchaser has not previously made a UK acquisition should not lead to them being side-lined in a sale process. We recently advised on the sale of UK businesses to a listed Icelandic group, an Indian investor, an Italian company and a Canadian company, none of which had previous crossborder experience.” In these circumstances, it is important that there is an obvious strategic and commercial fit with the target company and plenty of evidence showing that the purchaser is acquisitive.

Do I need to run the sale process any differently with an overseas purchaser?

With distance comes delay. When running a competitive sale process, it is important that all interested parties are progressing at more or less the same pace. It is often sensible to contact overseas purchasers with an opportunity a week or more before contacting UK buyers in order to enable them to mobilise their resources. The decisionmaking process of an overseas purchaser also needs to be fully understood from an early stage. Decision-making processes can be very different outside the UK - and often take much more time.

If an overseas acquirer expresses interest and requests a management presentation and/ or site visit, it is vital that the purchaser’s key decision-makers are represented among the visiting team. The presence of at least one key decision-maker will invariably speed up any approval process and avoid “fishing expeditions.” In any event, a purchaser’s reporting structure, ability to meet the major process deadlines and any local regulatory or stockexchange issues should be identified at the outset and factored into the discussions.

Essentially, the principles for successfully completing crossborder deals are the same as for UK deals, albeit with an even greater emphasis on “understanding” the prospective purchaser. By gaining this understanding, it is possible to anticipate potential pitfalls and, therefore, accommodate a serious potential purchaser whose interest might otherwise be discounted prematurely, simply by dint of their nationality.

When dealing with an overseas purchaser, what cultural differences might I be faced with?

I recently advised a vendor of a UK-based business on a sale to a large Italian purchaser. Negotiations had reached an advanced stage by the last week of July and a final draft of the Heads of Agreement had been circulated. Numerous conference calls were held to discuss the outstanding issues, with a number of reminders from the Italians that on August 3 they would be away on holiday and uncontactable until the beginning of September. A conference call on August 2 did not resolve the few remaining issues - and the Italian purchaser, true to his word, departed for the Tuscan hills with his mobile phone turned off. However, as promised, the Italian purchaser dutifully reappeared at the beginning of September, resolved all outstanding issues and commenced due diligence promptly. Exchange and completion came eight to ten weeks thereafter. The moral of the story is that when continental Europeans say that they are going on holiday, boy do they mean it!

Generally, an overseas purchaser will look for the same comfort through due diligence and the legal process as a UK purchaser, although there is likely to be a need for a more detailed market and commercial due diligence investigation, especially if the prospective overseas purchaser does not have current local representation. Client referencing can be an important facet of this process. It is important that both buyer and seller gain a clear appreciation quickly if significant customer contact will be required pre-completion.