The Challenge
Assess whether an acquisition was beneficial to both firms.
Results
Stronger market positon and improved profit potential for Firm A and a healthier balance sheet for Firm B.
A firm with a strong leadership and strategy for growth Firm A was approached by a competitor in their local market to see if they were interested in acquiring all or part of their firm. The short answer was possibly some, probably not all. Wilkinson Read & Partners were asked to meet with the Partners of firm B and review the position to see whether a deal would be possible which would appeal to both firms.
Establishing the Objectives
We were able to establish that for Firm B, a part disposal would allow them to achieve three objectives.
Firstly, they could realise some WIP and thus pay down a loan, and secondly they could exercise a break in their lease and downsize – but this made time of the essence. Thirdly, due to retirement, they had a department, without a partner which they felt represented a risk for which they were uncomfortable.
Shaping the Deal
Once we understood Firm B’s objectives we were able to identify the shape of the deal which should be acceptable to them and establish approximate values for the assets suitable to be transferred (not always easy with WIP in smaller firms).
Of course – Firm A would not only be acquiring assets, but would be taking on the staff and clients of these departments including TUPE.
This included departments representing over a third of Firm B. So we had to assess the commercial health of the departments including their fee earners likely performance and ability to generate margin and the main areas of risk rapidly.
Outlining the Plan
Then we had to look at the possible deal form Firm A’s perspective. Were the available departments worth buying? If so, at what value? Would the potential value to Firm A, allow Firm B to meet its objectives.
We put together an outline which we believed would allow B to achieve their main objectives – debt reduction, down sizing without termination costs, and losing the “unpartnered” department (risk).
There were elements which we deemed were unsuitable for A and some which A were very keen on some they were lukewarm about – but which were essential to achieve B’s objectives – and of course both sides had yet to agree about value.
Once we had created the substance of a possible deal, the firms were able to negotiate the detail and complete formal due diligence.
Successful Outcome
Our original client Firm A has added several capable staff to existing strong departments with hardly any overhead – strengthening its local market position and improving its own profit potential.
It’s local neighbour has withdrawn from areas of work with which it is no longer comfortable, has put its balance sheet into better shape, and is able to concentrate all of it’s attention on expanding the areas of work at which it excels.
We are delighted that both firms were able to trust our understanding or the situation sufficiently to allow us to shape the deal and complete the transaction with only minor modifications.
We wish both firms well.