+ What is corporate finance?

In the UK, corporate finance relates to raising of capital to create, develop, grow or acquire businesses with a view to improving shareholder wealth.

This often involves a change of ownership or structure in the business typically by issuing new equity or debt. Typical transactions we get involved in include M&A such as company sales, fundraising, refinancing, restructuring and management buyouts (MBO) or management buyins (MBI) of companies.

+ What is M&A?

M&A or mergers & acquisitions relate to transactions where there is a change in ownership structure of a company or operating unit with other entities. We typically get involved in the management, strategy and financing related to selling a business or buying a business.

+ What is a management buyoyt or MBO?

A management buyout (MBO) is where a company’s management team purchases the assets and operations of the business they manage.

Sometimes, a management team may purchase the assets and operations of a business they do not currently manage in which case this is called a management buy in (MBI). This sometimes may happen when a management team sees no prospect of their own company's owner selling to them.

Other forms of buyouts include:

• BIMBO which stands for Buy-In Management Buyout. This is where a management buyout takes place and new management are added and buy shares at the time of the transaction.

• VIMBO stands for Vendor Initiated Management Buyout. This is where the sale of the company to its management is initiated by the owner looking for a successor.

• FAMBO stands for a family management buyout. This is typically used to help family businesses put together a succession plan allowing older generation family members to extract some value and determine the family members who can to take the business forward into the future.

+ What is EBITDA?

EBITDA stands for earnings before interest tax and depreciation. It is often used when determining valuations. The EBITDA shown to prospective buyers is often adjusted for many factors to show the buyer the expected future maintable earnings being acquired. Therefore, if we are selling your business, we will spend a lot of time reviewing the financials identifying normalisation and maturity adjustments.

+ How do you value a company?

Company valuations or an enterprise value ("EV") tend to be based off a multiple of a financial metric. The most common metrics used are multiples of EBITDA, earnings or revenue and sometimes assets.

The multiple for a specific company are driven its sector, trading and value drivers and position of the business within that sector as well as the buyer/investor appetite at that moment in time. Buyers will pay more for better quality of management, scalability, intellectual property, earnings track record, cash dynamics, lack of dependencies. A buyer will also often pay over the odds if it represents a strategic play and is bidding in a tightly run competitive bidding process.

The EV of a business is shown on a net debt or cash basis. Any surplus cash or debt in the business will normally be negotiated with the buyer by analysing and agreeing the level of working capital as well as other assets within the business.

Contact us if you need help in determining a valuation as you looking to buy a target, sell your business, raise finance, determine a share price for exiting shareholders or a share incentive scheme. We can help you with ways to improve the valuation if you are thinking of selling in the future and conversely we know how to reduce the price for businesses you may want to buy.

+ What is Gross Consideration?

Gross Consideration, in the context of selling or buying a business, is the amount of proceeds a buyer is willing to pay to acquire a company.

It simple terms it represents the sum of the enterprise value plus any surplus cash minus any debt that need to be paid but will also include any other cash or non cash elements that may form part of the overall agreement.

Gross Consideration may be structured in many ways but the key elements normally will include:

• Cash out meaning cash paid on completion of the transaction;
• Deferred consideration meaning amounts paid in the future post the completion date without any conditions stipulated;
• Earnouts meaning amounts paid contingent on the performance of the company typically linked to profit, turnover, customer retention or some other condition.

The payment of consideration can be in the form of cash, loan notes or some form of financial security in the purchaser's company.

The structure and terms of the consideration negotiated between the purchaser and seller can become quite technical and come with commercial, legal and taxation implications.

+ What is a Sale and Purchase Agreement or SPA?

The Sale and Purchase Agreement or SPA is a legal agreement that brings together all the key commercial and pricing negotiations.

There is a significant amount of work and negotiations required between the purchaser and seller all looking to exploit as much value.

Our team will support you at all stages of a transaction from pre-deal work to identify and agree commercial and pricing issues right through to post-completion support to execute any particular SPA completion mechanism.

+ What are indemnities and warranties?

Once the buyer has made an offer to acquire a business, it is incumbent on them to perform any due diligence on the target company before signing the Sale & Purchase Agreement ("SPA").

Warranties: The SPA will contain a warranty schedule which consists of numerous positive statements being given by the seller to the buyer. If any of these warranties turn out to be incorrect and the seller had not informed the buyer that this statement was inaccurate prior to completion (by disclosing), the buyer may make a claim against the seller for breach of contract. The process of adding warranties and the seller having to disclose against the warranty helps the buyer to reveal valuable information about the business and provides a level of protection. It also helps in the negotiations for the buyer to push the purchase price down or potentially walk away from the deal. It is critical for a buyer that thorough due diligence is undertaken and careful thought is given to warranty provision process.

Indemnities: During the warranty/disclosure process, the buyer may require more legal protection than that offered by a warranty and will seek for an indemnity to cover any loss arising from that issue. This requires careful drafting of the indemnity on both sides to ensure it covers the issue in question (to protect the buyer) but making sure it is not too broadly drafted (to protect the seller).

+ How long does it take to sell my business?

The sales process typically takes between 6 to 9 months to ensure you give yourself sufficient time to prepare the business for sale and maximise the value by running a competitive sales process. It actually really helps to start planning your exit two years ahead the game. There are often circumstances where time is of the essence particularly if you have received an unsolicitated approach or in financial difficultly and need help to run a process in a short period. Our team are experts in running accelerated M&A transactions (AMA).

+ What is involved in due diligence?

It usually involves a detailed report being prepared on the target company's financial and tax, IT, operational, market and commercial aspects. Due Diligence is used by investors or buyers to ascertain if the potential target company is suitable for their needs. It helps ensure investors or buyers get the right price for the target, mitigate risk and maximise returns. Quite often the target company may also request a due diligence report to help get themselves ready for a potential sale or fundraise.

+ Where can I source funds from?

When it comes to raising finance for you business, you have a number of options to consider all with its own set of pros and cons. Funders include lenders such as banks, invoice finance providers, asset financiers as well as equity providers such as private equity, venture capital, business angels, crowdfunding, venture. There may also be other funding sources that you can leverage suppliers, government grants and R&D tax credits.

+ What are your fees for your services?

Fees vary depending on the scope of the engagement. Our corporate finance related fees tend to have a large component which is based on the success of a transaction completing. Our strategy advice fees are normally charged as monthly retainer fees or charged on an ad hoc time basis. Our fees are always tailored to your specific needs ensuring we are always completely aligned.

+ Why are you an appointed representative of Sapia Partners?

Accelve Limted is an appointed representative of Sapia Partners LLP which is authorised and regulated by the Financial Conduct Authority, firm reference number 550103. This enables us to provide regulated corporate finance services. Always check that your corporate finance broker or advisor has the necessary regulated permissions to carry out the corporate finance activity or services being offered before you sign an engagement letter with them.

+ What are Heads of Terms?

The Heads of Terms is a document setting out the commercial terms of a transaction agreed in principle between parties in the course of negotiations. Heads of terms signify the intentions of two parties but does not legally compel the parties to conclude the deal on those terms or even at all.

+ What is working capital?

Working capital is what makes your business run. Managed well, it will help improve business efficiency and fuel growth. It represents the cash a business has after accounting for money coming in and money going out over the next 12 months. In simple accounting terms this is the net difference between current assets (assets that can be turned into cash within 12 months) and current liabilities (debts or other payable item due for payment within next 12 months) and results in a net positive cash balance or a negative balance.

+ What is an NDA?

NDA stands for Non Disclosure Agreement and is a confidentiality agreement which sets out the legally binding terms by which sensitive information can be shared by the one party (the "discloser") to another party (the "disclosee"). It is commonly used before entering into discussions or negotiations with a business with a view to investing, acquiring or forming a joint venture or other type of partnership. It's purpose is to protect the confidential information being miused.

It is important that the terms agreed to by each party do not give away rights to confidential information or unwittinglyrestrict a party from operating their own business.

NDAs can be:

• non mutual where one party is only protected from disclosing confidential information to another party; or
• mutual agreements whereby both parties agree to the same terms of disclosing information to each other.