On occasion, during a mergers and acquisitions (M&A) process, it can be the case that a buyer becomes aware of facts or conditions that may change their outlook on the target company and/or the structure of the deal – which we might refer to as potential “deal breakers”.
One critical role that should be performed by the respective advisory teams is to establish whether a deal would still ideally be the destination for both parties and, with that established, set about navigating a way around the matter(s) at hand.
There is a range of potential solutions that might be considered. Some examples are below:
Is the price still right?
Let’s think, for example, of a matter that might carry a risk of reputational damage down the line – is the multiple used in calculating Enterprise Value still valid?
Can you get expert help?
In some cases there may be uncertainty as to the likelihood of an event happening and then what the cash impact of such an event may be. Litigation involving the company may fall into this category, and it may be the case that an opinion from a lawyer or barrister experienced in the relevant area of law can provide comfort and/or quantification.
Should money be left on the table?
A reasonably common occurrence in deals is for there to be arrangements flagged where a particular tax treatment could be disputed by HMRC and it’s not practical for the treatment to be confirmed as acceptable before the deal completes. One way forward in such circumstances is for an amount commensurate with the amount of tax potentially at stake, to be deferred until the expiry of a given period – the corporation tax self-assessment enquiry window for example – which may bring with it some greater certainty.
Rethink what is being bought and sold?
It could prove necessary, especially from a buyer’s point of view, to not acquire the share capital of a company and, instead, look to acquire the company’s trade and assets. In doing so, the buyer can put distance between itself and any future liabilities that may hit the target company. Quite a dramatic step this one, with wide ranging impacts on the vendors (particularly with regards to tax), and probably the last chance saloon for a deal.
It’s undoubtedly the case that some matters should, indeed, become deal breakers and it is the right answer, potentially for both parties, to walk away. However, it’s worth considering the alternatives first. Another reason to have experienced M&A professionals on your team who understand you and your objectives.