Published Winter 2012 / 2013
It is now five years since the start of the financial crisis.
Having gone through a doubledip, some commentators are talking up the prospect of a “triple-dip” and we continue to see negative news in the media with well-known high street retailers (HMV, Comet and Blockbusters to name a few) going into administration.
Despite all this doom and gloom, we have seen an upturn in transactional activity culminating in a number of deals closing late 2012 and early 2013.
There is no doubt that there are still difficult times ahead nationally and internationally – the rough sea of the economy will give many, irrespective of their size, a rough ride over the coming months and years. However, the commercial activity we have seen throughout our client base indicates to us that things are normalising and, dare we say, in certain sectors improving. Whether or not we think mention of green shoots is simply “spin-doctoring”, some sectors/industries have experienced positivegrowth, and not only recently, but throughout the financial crisis. We ourselves have been extremely busy with corporate transactions in our Corporate/Commercial department over the last 6-
At Neil Myerson LLP
As you can imagine, the last 5 years have seen businesses and individuals being more litigious as they have been keen to enforce or protect their commercial rights and interests. This has seen our Commercial Litigation department experience rapid growth. Similarly, after our Employment department supported clients through the initial surge of mass redundancies (mainly in the private sector), it continues to be busy now with contentious employment litigation, high value compromise agreements and transactional support work for the Corporate/Commercial department.
As predicted by the Property Partners, Richard Lloyd and Jeremy Lee, commercial property has turned from a relatively inactive market for sale and purchases to what is now a very active market. Investors and developers are now seeing opportunities tempting them back into the fray. Signs of a recovery…
In our Corporate/Commercial department, we managed to maintain the levels of work throughout the financial crisis and more recently we have seen an upturn in deals leading up to a rush of activity towards the end of 2012. We have also worked with clients who have flourished over the last 5 years by operating robust businesses grounded on sound business models. Some have done sufficiently well to allow them/their owners to exit. For example, we recently concluded the sale of Strand Technologies Limited and another technology-based company to overseas purchasers – these sales happened following solid sale performances by them. It hasn’t been all plain sailing over the last 5 years.
We have worked closely with many businesses who have found the period challenging to say the least. We have assisted with restructuring, re-financing and investment. We have also advised on the obligations and duties of directors and how these change on the onset of insolvency and, if their concerns are more terminal, we have worked with them on insolvency strategies, including pre-packs. The prediction of mass insolvencies, administrations and liquidations has not really come to fruition and the recent newsworthy additions to that list (HMV and Blockbusters) have been for reasons which have more to do with technological market changes than with the recession. Banks, to their credit, have been reluctant to pull the plug on many struggling business and have been looking to “manage” businesses that do not sit well in their portfolios off their books. This, on the one hand, contributes to the recession but, conversely, also provides potential opportunities for competitors, investors and business angels.
The range of the type of deals we have seen:
- cash exits where the buyer pays 100% of the consideration in cash on completion to exits with deferred consideration and/or earn-outs;
- mergers by way of an exchange of shares (exiting shareholders getting shares in the buyer) to mergers mixing shares with cash;
- private equity/investment deals with investors/business angels taking a shareholding in a company together with a refinancing package;
- facilities and loans from investors/business angels with adequate security;
- prepacks – appointing an administrator who then sells the assets back to the directors/shareholders or a new management team.
It was anticipated that most, if not all, deals after 2007 would be heavily purchaser-biased, leveraged with deferred consideration and/or earn-outs. Whilst they have been relatively purchaser-biased (perhaps “conservative” would be a better description), recent deals have shown exiting shareholders opting for the certainty of as much cash out as possible on completion rather than risking a greater amount through deferred consideration and/or earn-outs.
What do we hope to see in 2013?
Opportunities will continue to arise, some may be distress opportunities where deals need to be quickly done to help a struggling business and others will be more like what we grew used to just before the financial bubble that caused the recession. It will be some time before the Banks feel comfortable enough to be heavily involved in corporate activity. In the near future, it will not be like it was just before the recession, Banks will only be prepared to fund a deal where there are sensible cash flow projections and adequate security. However, we have seen businesses adapting to this lack of appetite shown by the Banks in structuring themselves in more robust ways and structuring deals/opportunities in ways that rely less on Bank financing. Further things we may see:
- wealthy individuals plugging the funding gap in certain sectors (e.g. technology);
- the rise of crowd funding;
- businesses turning to traditional asset backed lending, for example, invoice discounting/finance leases;
- a requirement for personal guarantees from director/shareholders becoming the norm.
From an acquirer’s perspective, there are now plenty of opportunities – whether picking up a complementary business or moving into a new sector. It is possible to negotiate deals to suit; there is no “norm” anymore. With what is being seen as an uncertain time ahead, potential acquirers are in pole position to strike a deal on their terms.