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Control is the key to shareholder value being realised; James Trevis and Jon Gill, both corporate lawyers at international law firm Eversheds LLP, explain how a focused approach to legal execution can deliver value in today's difficult market.

Byline: James Trevis; Jon Gill

As we move towards the end of Q1 2012, it is clear that the M&A market remains a challenging environment in which to do deals. Despite corporate buyers holding significant cash reserves to pursue strategic acquisitions, and private equity firms also having funds to invest, extreme care is being exercised as to how these resources are deployed.

Against a backdrop of uncertain debt markets and a rising cost of funds for acquisition finance opportunities, allied with a relatively small number of high quality assets coming to market, many commentators are predicting that deal volumes will not significantly increase as we move through the year. It is, essentially, a "discretionary" market in which buyers are finding reasons not to do deals, placing increased importance on intelligent and focused legal execution in order to deliver shareholder value.

Having advised on the majority of the region's most important and strategic disposals over the last 18 months, our Midlands team has seen first hand how well-planned and executed sale processes can achieve successful outcomes, notwithstanding the market conditions, whilst less prepared sellers run the risk of coming away from transactions with a sub-optimal result, both in terms of immediate value delivered and postcompletion adjustments and liabilities.

One high profile transaction which our team recently completed was the pounds 180 million sale of Wiggle, the running and cycling online retailer, to Bridgepoint Capital. Eversheds acted for ISIS Equity Partners and the management shareholders in delivering a transaction which achieved a 15x money multiple for ISIS, working alongside the Birmingham office of Rothschild who provided corporate finance advice. Whilst the multiple paid for Wiggle was notable, it was also a transaction that was delivered within the original timetable that was set - no mean achievement in an environment where transaction timetables are increasingly being pushed out as buyers take time to get comfortable with due diligence and competitive tension is hard to achieve. This was also the case on a number of other key disposals we have advised on, for example, RJD Partners' pounds 65 million sale of transport operator Translinc to May Gurney PLC, and NVM Private Equity's pounds 18 million sale of Promanex, the industrial support services provider, to Costain Group PLC.

Each of these transactions were delivered by investing a significant amount of time in preparing for the process, both in terms of collating information but also pre-empting the areas of focus for a buyer and ensuring that the necessary information was available to assist the buyer in their diligence and investment approval process. A comprehensive data room, made available when fully complete and not before, can provide comfort that a process is being professionally managed and ensures that the sellers remain in control of the process from the outset. One of the key lessons learnt in today's environment is to hit deadlines to ensure you remain on the front foot - if you do not, discipline is eroded from the process and control drifts towards the buyer, making it increasingly difficult for the seller to achieve its objectives in terms of both timing and certainty of delivery.

Competitive tension is clearly vital in order to ensure that buyers adhere to the process which the sellers have designed for the transaction. Whilst this is easier to achieve when selling a highly sought-after asset with significant historic earnings growth and future potential, this remains a key driver of shareholder value on exit. Corporate lawyers should therefore be working "hand in glove" with their corporate finance advisory colleagues to ensure that the dynamics of the process are fully understood and their respective approaches are aligned. A key decision which needs to be made together is when to grant exclusivity - this should only be done once there is satisfactory certainty on the terms offered by the preferred bidder.

If this is not the case, the door is open for a renegotiation at a later stage or for expectations to be simply misaligned with the result that the sellers do not end up with the result they were originally anticipating.

The common thread running through these points is that of control - sellers need to work with their legal and corporate finance advisers to ensure that they remain on the front foot throughout and that the process is intelligently designed, well prepared and seamlessly delivered. The design of the process is particularly important - it is not easy for a buyer to deliver a transaction in today's environment and by understanding both their areas of focus for due diligence and their deal process in terms of approvals, financing conditions and execution mechanics, the sellers can adapt the process to ensure they help their preferred bidder to the finishing line. Empathy and a collaborative approach has become key to effective execution.

Whilst 2012 will continue to be challenging year, transaction pipelines are very healthy and it is clear from speaking to our corporate finance advisory colleagues that a good number of quality assets will come to market later this year. Having invested a significant amount of time, effort and expense in doing so, sellers need to ensure that the approach taken to legal execution of their transaction gives them the highest possible chance of success. Our experience on Wiggle, Translinc, Promanex and many other strategic sale mandates has shown that a wellplanned and focused legal process will enable value and contractual risk expectations to be realised, and we are looking forward to delivering similar results for our clients as we move in to Q2 2012 and beyond.


James Trevis and Jon Gill, both corporate lawyers at Eversheds
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Title Annotation:Features
Publication:The Birmingham Post (England)
Date:Mar 29, 2012
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