Completing the Deal: Nigel Greenaway on his company’s M&A Practice and his Predictions for UK’s M&A Activity in 2018
Nigel Greenaway is one of the two founders of Greenaway Scott – a multi-disciplinary professional services Group, based around the law firm Greenaway Scott, which was approved as an Alternative Business Structure by the Solicitors Regulation Authority early in 2017. Established in January 2013, Greenaway Scott law firm specialises in mergers and acquisitions, equity fund-raising, exits, listings and other company reorganisations and fund-raising activities.
Verde Corporate Finance, a leading advisory business which handles financial aspects such as company valuations, target offers and the financial reporting aspects of any merger or acquisition, is also part of the Group. Today, the Greenaway Scott Group has grown to include 3 offices and 35 members of staff across the team. This month, as part of our Completing the Deal section, CEO Today speaks to Nigel about his company’s M&A practice and his predictions for UK’s M&A activity in 2018.
Could you tell us a bit about Greenaway Scott’s Corporate Finance and M&A practice?
The Group is focused on corporate finance and M&A activity, whether that be from the legal perspective or the financial perspective.
We are multi-disciplinary, so we believe that a client is best served by a closely aligned service – from company valuation and transaction start point, through to closing and the legal details involved in the final documentation.
Greenaway Scott has a sector specialism in life-science and technology businesses and all of the commercial lawyers at Greenaway Scott have STEM (science, technology, engineering or maths) qualifications in addition to their legal qualifications.
We work frequently with high-growth businesses and have strong links with a number of Universities in the UK, working with these to assist the commercialisation of their intellectual property and business developments.
In the last 12 months, the team at GS have worked on over £100m of corporate transactions, and we continue to grow and see a significant amount of activity as the economy changes and businesses develop their offering.
What are the particular challenges of assisting clients with planning their M&A strategy, considering the ever-changing nature of the sector?
There are always 3rd party challenges – with the economy seemingly suffering from major change on a month-by-month basis. The political environment is difficult in the sense that it causes uncertainty and the environment is far from being settled.
However, by their nature, a lot of people involved in establishing a business are people who also feel able to make decisions and respond to changing environments quickly. Setting up a business in the first place is a highly pressured activity and then, being responsible for the growth of the business and the salaries and livelihood of your employees means there is always a significant pressure to evolve and accept that the world is never perfect and complaining generally doesn’t help.
Thus, there is a real importance in respecting that an M&A strategy can be purely about the financial situation of a Group, but equally, with a disposal, it also involves an owner selling a business or asset that they have spent a significant amount of their life thinking about and developing.
The key is understanding the motivation for the deal and the client – whether it is a disposal as the time is right to retire, a disposal of part of a business as a 3rd party can add fresh funds and invigorate if for further growth or whether the process is part of a building strategy for a business having regard to the desire to create something for the future.
If the base motivation is not understood, then the whole process can become very alien and difficult very quickly.
Identifying and creating a shortlist of potential buyers is vital to the success of any transaction – what methods and resources do you have at your disposal to ensure you are talking to the most relevant buyers?
As with most businesses these days, technology is the key starting point. We invest heavily in research tools that allow us to identify who is active in a particular market, assess their financial strength and then assess their fit strategically.
Once we have the basic data, we can use our people to better analyse the opportunities and of course, there is also the “little black book” where some personal contacts may also be relevant – these have built up to be useful after more than 20 years in the industry.
We also find that our clients tend to have a very good feel for who they would like to see on the list of potential buyers, and also, in some instances, some strong feelings about who they definitely do not want to see on that very same list!
Technology, research, talking and listening are the key to ensuring the buyer pool is relevant, capable and active.
Which factors arising from the due diligence process have the potential to stop a deal going through?
We try to work with our clients for a long period of time prior to a disposal. We find that a client that has taken professional advice on its structure, and paid care and attention to its trading documents and legal processes, is typically in very good shape for a due diligence exercise. In this scenario, very few well-thought-out processes that have had time and attention given to them actually fall over.
However, if a business has not focused on how it will look at time of exit, then the due diligence process by its nature is designed to expose the skeletons in the closet. These can come in all shapes and sizes – but generally, the skeletons that are deliberately hidden can be the most costly as that then makes a buyer question the integrity of the seller and the manner in which it has run the business.
If there is an issue known to the seller the best approach is to be open about it and address it early in the deal process. A lot of businesses encounter difficulties along the way when trading, and thus, an issue that has been identified and corrected or identified and thought through should not de-rail a deal.
The deal-stoppers tend to be significant financial issues, or issues that would fall into the “cover up” category!
What complex issues usually arise during a negotiation process and how are they overcome?
Most deals are complex – by their nature, a buyer is typically buying a significant target that they need to fully investigate and understand.
However, the complexity of the product or technology generally does not cause an issue. Typically, a buyer and seller would be from similar industries or at least have similar expertise/interests. That generally allows each party to get to grips with the technical aspects of the product or technology fairly quickly.
Complexity usually creeps in with the deal structure – it is unusual to see a deal fully paid out at completion in the current environment, and then deferred consideration and earn-out calculations can be complex and need care when documenting.
It is important to use advisors that are active and up-to-date, unnecessary complications can arise when the advisors themselves find themselves in a situation they are not comfortable with or do not have the experience to deal with.
However, generally, most issues can be overcome. It is normal to have a willing buyer and a willing seller and so that is a good starting point as ultimately the parties are trying to achieve the same result – a successful change of ownership.
What does 2018 hold for M&A in the UK?
2018 will definitely be interesting. There has been a lot of activity in 2017 and change does create an environment in which deals happen.
So firstly, it is fair to say that I am optimistic that 2018 will be an active year and that a lot of good deals will be happening.
The speed of evolution of technology means a lot of deals are becoming more focused on intellectual property and the intangible asset. That shows no sign of slowing down in 2018.
The unknown quantity is Brexit – it will certainly create change and undoubtedly creates risk – however, whether that creates more or less activity is anyone’s guess at the moment. From personal experience, most business owners I know are being resilient and continuing to make the decisions that they feel will ultimately best benefit their business.