Founded in 2012 by Paul Herman and James Caan, one of the UK’s leading entrepreneurs, Bluebox provides expect advice and quality services for business owners on their journey towards the sale of their business, and at the point of exit.
Have you ever thought about merging your company with another but never really understood the process?
This blog will explore why companies merge and how a merge could help you and your business.
Anyone can merge – a small or large business, whether in retail or travel, it does not matter.
Below are some useful pieces of M&A terminology. The term, “M&A” is all encompassing but as you can see, it can relate to a number of fundamentally different business arrangements.
- Merger: The joining together of two companies that were previously separate. In the legal sense, a true merger would mean both companies would fold, dissolve their assets and liabilities, and create a new entity.
- Acquisition: Taking possession of another business. This may also be referred to as a takeover or buyout.
- Strategic Alliance: An ongoing partnership between two companies that is mutually beneficial. The idea behind this is to minimise risk while maximising leverage. An example of this could be buying goods in bulk to save on outgoings.
- Joint Venture: Two or more businesses joining forces for a specific project, for which profit and losses will be shared. A venture will be related to one specific project only.
So why merge? What are these other benefits, I presume you are wondering?
A company will decide to merge if is thought that doing so will contribute to an increase in shareholder value. We have explored several factors behind the decision to merge below.
Diversification is the spreading of risk through investment decisions. Reducing risk, and avoiding it altogether, is something every business owner seeks to achieve. Having all your eggs in one basket can leave you exposed and there is nothing wrong with placing a few in someone else’s, so to speak… Therefore, an opportunity that enables you to strengthen your businesses future more securely is one that anyone would jump at.
Merging with a firm located in a different geography than your business could reduce any foreign exchange risk and localised recession. This is a strong motivation that encourages businesses owners to merge.
Companies sometimes merge when they are financially in trouble and will look to another for aid. Normally, a decision to merge is forced in a situation such as this as the alternative may be losing the business altogether.
But, as we have seen, merges aren’t just for struggling companies and if there have been some challenges you’ve come across along your business journey, then a merge could create some benefits for you.
If you are looking to merge and have previously sustained net losses, the business you have merged with could help you disregard your losses. That is only if their profits give them a financial forecasting that represents operating gains that will occur in the future, which would make the tax shield worthwhile.
Two companies operating in the same, or similar, industry will be able to reduce the amount of staff they use within the business if they were to merge, thereby boosting profits. Head office roles such as accounts, marketing and PR would all be duplicated in a merger and so savings could be made in this regard.
A merger could be the answer to all your problems (if you have them, that is!), but it could also be the solution to help your business reach new heights. Either way, it’s something to think about, don’t you think?
To conclude, we would like to take the opportunity to invite you to our breakfast event, which delves into how to prepare a business for sale to maximise value and achieve the highest possible return.
We will be discussing the key stages involved in a sale process, with guest speaker, FD Melissa Foux, who has sat on various boards including Gü, during the sale process. Please see below:
Event: How to help prepare your Board for an exit? – What you and your Board need to know
• Is your Board ready to sell?
• Why do most business sale processes collapse?
• What will an acquirer attribute value to?
• How will acquirers value the business?
• What is due diligence and how can you help a Board to prepare?
• Key stages in a sale process
• Expert’s view from an FD Perspective: hear from Melissa Foux
Date: Wednesday 28th November
Time: 8:30am – 11:30am
Venue: Goodman Derrick, 10 St Bride St, London EC4A 4AD
The event will be hosted by Paul Herman, Founder of Bluebox Corporate Finance. Paul has sold over 70 private businesses during his career, with values ranging between £2m and £200m, and across a wide range of sectors. This includes a number of well-respected UK businesses such as Models Own, Gü, Princess Yachts, Mappin & Webb, Smythson, Watches of Switzerland, TXM Plant and The British Retail Consortium.
We are also holding a Corporate Valuation Masterclasses that we would like to invite you along to:
Corporate Valuation Masterclass
• Why do you need to know your value?
• The various valuation “methodologies”
• What will an acquirer attribute value to?
• How does it happen in the “real world”
• “Adjusting” the financials
• Creating a forecast
• Enterprise Value
Date: Tuesday 11th December
Time: 8:30am – 10:30am
Venue: Bluebox offices, 93-95 Gloucester Place, London, W1U 6JQ
We do hope to see you there.
The Bluebox Corporate Finance Team