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Why you need to be ready for merger and acquisition activity

Date: 4/09/2014 | Author: Jason Fazackerley and Paul Sanderson

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Today, we look at mergers and acquisitions:

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As UK plc returns to pre-recession growth rates, activity in the acquisitions market is about to play catch-up. All those owners who shelved their plans to divest back in 2007/08 are now looking to realise healthy returns through a sale. Equally, those looking to expand through acquisition are now riding high on a wave of confidence, and are very much back in the market.

The core objective in any successful business transfer should be to maximise the value in the deal for both buyer and seller. However, the conventional view is that the seller wants to get as much cash as possible from the buyer as a single up-front payment and with no tie-ins.

Meanwhile, the buyer wants to give as little to the seller as they can get away with, but to secure the transaction by applying all sorts of warranties and penalties on the seller in case it goes belly-up.  On the face of it, these are two completely opposing strategies, yet they have been the reality for many acquisitions and they often end with neither party realising best value.

How to get best value:

All too commonly, owner-managers build businesses around themselves. They are the king-pin without which the company does not exist!  This is not a good situation for either party. So, owners need to prepare for sale in advance:

·         Remove reliance on the owner

·         Have and enact a succession plan

·         Define and implement sound processes and procedures

·         Implement systems that remove reliance on key individuals

How to de-risk your investment:

For the buyer, due diligence is key. You need to be sure you understand how you can affect the target company and therefore increase its value:

·         Identify stress-points, under-utilised resources and performance issues

·         Act quickly and assertively to bring customers, suppliers and staff into the new enterprise, in body, soul, processes and systems

·         Appreciate the key future players and liberate the old guard

There are still opportunities for businesses to be bought and sold in the recycling and waste sector, with potential opportunities emerging to generate value from acquisitions.

Prodware provide integrated software for the waste management and recycling industry, including the leading solution enwis)

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Paul Levett - former Veolia Environmental Services deputy chief executive and current board member for a number of companies in the recycling sector (pictured) – believes that we are likely to see an increase in merger and acquisition (M&A) activity in the recycling and waste sector as the economy improves. But he sees the pattern being different to before where the large waste management companies consolidated smaller companies into their operations.

He says: “The huge companies have exposed themselves to large PFI contracts, and these are a strain on the balance sheet because of the infrastructure requirements.

“But I think we will see new entrants such as foreign waste management companies and power companies getting more involved.”

He also suggests that commercial and industrial (C&I) waste will be the focus of M&A activity.

“We should remember that there is twice as much C&I waste as municipal and none of the big companies are building plants to deal with this.

“If you look at the names over the doors of the infrastructure being built for this, they are landowners, technology companies and financial investors, and in five years time, some of these companies will have been bought out.”

In his experience, when a company has been bought, it is often about buying the customer lists and relationships of the business. He recommends that when purchasing a company, it is vital to get close to the customers as soon as possible to ensure a smooth transfer of the business and retain their custom.

He also suggests that it is vital to get people using the same systems as possible, but that you shouldn’t just assume that the bigger company has the better infrastructure. It might be that the smaller company that has been acquired has the better systems and these should be rolled out across the entire new entity. 


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