September 2, 2020
1. COVID-19 Impact
While the COVID-19 pandemic paralysed M&A activity across the globe earlier this year, there now seems to be light at the end of the tunnel with countries and businesses beginning to reopen in an effort to breathe life back into both global and local economies.
There is no doubt that there have been, and will be, winners and losers from this pandemic. Certain sectors have benefitted hugely from the new ways to everyday life (particularly those in the tech, pharma and media). But there is also no question that many businesses have suffered, many fatally, especially those not able to quickly adapt.
However, whilst we foresee the very sad demise of many businesses in the tsunami that COVID-19 represents, we are concomitantly optimistic about the consolidation that will inevitably follow, which seems to be on the verge of taking off. This volume of activity will, we believe, sit alongside the more entrepreneur-driven M&A where individuals look to ‘exit’ their businesses after the stresses and strains of the last 6 months. And, on top of that, there is significant capital in the private equity community which simply needs to be spent.
Well-run businesses that are operating in resilient markets will undoubtedly command higher-than-usual valuation premia this year. However, those businesses now limping along with dramatically lower revenues, unmanageable overheads and weak balance sheets may well be leaking in value as the year continues. It some ways the market is polarising.
While the future is ultimately dependent on both the path along which the virus re-accelerates and how individual governments respond, many commentators are also warning that other small (!) events such as Brexit and the US Election will come into play!
And so, whilst many are predicting a bumper Q4 for the corporate finance world, the Bluebox view is that we shall sadly need to sit and wait to see how the world transpires. After all, we would have been considered lunatics for suggesting at Christmas that our summers would be remembered for face masks and locked pubs.
2. Impact on Specific Features of an M&A Transaction
First and foremost, buyers will want to understand how a target will have been affected by COVID-19. Not only does this mean understanding the impact on the financial condition of the target in question, but also an increased focus on the areas of the business that may have been affected by the virus (positively or adversely). From an operational perspective, People and HR (furloughing and redundancies), finance (Government support packages), and IT (increased levels of home working) will be scrutinised.
Additionally, assembling data room documentation and arranging site visits and meetings with management will become increasingly challenging following COVID-19. There is a good chance that this could extend the average due diligence process, with the exception of the more ‘distressed’ deals which may move to a far tighter timeframe.
Deal structure and valuation
With greater impetus being placed on companies to manage liquidity in the face of uncertainty, it is also likely that we will see an increase in the proportion of share consideration/earn-outs versus upfront cash. Earn-outs are likely to increase in popularity, as they will provide a means to bridge a gap between sellers’ and buyers’ value expectations against a backdrop of unusual instability, COVID-19 ‘add backs’ and liquidity challenges.
Purchase price adjustment mechanisms
Until recently, locked-box accounts have been the preferred choice of purchase price adjustment mechanism. However, it is likely that we will see an increased use of completion accounts as buyers seek to deduce targets’ new “normal” levels of working capital.
Warranties & Indemnities
Buyers will consider whether there needs to be any COVID-19 specific warranties to ensure they are protected against any risks resulting from the virus. From the seller’s perspective, they will likely try to minimise the warranties they provide and, in many cases, seek to obtain W&I insurance as necessary for cover. They will need to be mindful, however, that certain insurers are attempting to exclude COVID-19 from their policies to mitigate risk.
3. Corporate Finance advice post-virus
As we move forward post-virus, the world of corporate finance ‘deal doing’ is likely to be very different for some. The priorities and requirements of some business owners will have changed and the traditional “hands on” advisory service model may not suit all.
In parallel to the existing team offering at Bluebox, we are delighted to have launched a new range of products branded “Velocity” which address, what we believe to be, a gap in the market. Do take a look at www.blueboxvelocity.com. The products are very accessible in terms of pricing, have been put together by a budding team of techies and involve a far lower level of handholding when compared to Bluebox. Maybe this is the start of new generation of corporate finance?
Bluebox Velocity provides business owners looking to sell their business, raise funds, or buy a business, with menu-based corporate finance products and packages. There are no tie-ins, exclusivity clauses or monthly fee commitments, giving customers flexibility to navigate their M&A processes on their own terms. Of course, some business owners will want, need, or prefer the traditional corporate finance approach, in which case Bluebox is here to help as always!
To continue to read about our traditional corporate finance offering Bluebox, please visit us at www.blueboxcfg.com.
To find out more about our sister business Velocity, please visit www.blueboxvelocity.com.
“We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.
We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”
Richard Millward, Former Client
“We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”
Helen Dickinson, Former Client
It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.
Hugh Morris, Former Client
We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.
Laurence Seward, Former Client
Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.
Mike Minett, Former Client
We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.
David Stokes, Former Client
When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.
Jeff Weinstein, Former Client
When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.
Bill Ballard, Former Client
Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.
Alan Montgomery, Former Client
The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.
Nigel Parsons, Former Client
I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.
James Caan, Investor
We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.
Marten Nielson, Former Client
We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.
Paul Duckworth, Former Client
I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.
Peter Bennett, Former Client
Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.
James Averdieck, Gü, Former Client
The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.
Jon Parslow, Former Client
“We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”
Simon English, Former Client
Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.
Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.
Victor Lewis, Former client
Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.
Simon Hulme, Former Client
Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.
Michael Clapper, Former Client
I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.
Mark Rodol, Former Client
I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.
Steven Davies, Former Client
With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter
Clive Hillier, Former Client
The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.
Harpal Singh, Former Client