Partner, Moore Stephens

M&A points to consider before executing a U.K. inward investment strategyM&A points to consider before executing a U.K. inward investment strategy

Investing in the UK, an acknowledged world-leading business destination, is a strategic objective for a number of global companies and international investors. But what should you consider before you take those steps?

  1. Have a pragmatic strategy beyond Brexit

In January 2017, UK PM Theresa May set out her 12 point plan for negotiating the UK’s exit from the EU. A good entry strategy should be Brexit agnostic and therefore plan beyond it in order to effectively navigate the uncertainties likely to arise as Brexit is expected to be formally triggered in 2017.

  1. Structure of the transaction

Consideration should be given to the type and form of entry strategy. Identifying the right acquisition candidate is important and involves market mapping, exploring the universe of candidates and assessing whether the target is the right fit and the most appropriate way to engage with them.

Undertaking an acquisition in the current political change facing the UK and other G7 countries in 2017, a strategy that is flexible with optionality built in may well benefit all.

  1. Do you have the right professional advisers

It is important that you have the right professional advisers who understand the UK, share your values, know your story, and have the right skills to service you in this vibrant economy beyond the completion of an acquisition.

The right advisers will help you gain insight into and navigate the regulatory framework, act on your behalf during negotiations, provide access to their proprietary database of potential acquisition targets thereby avoiding corporate auctions, help engage with and project manage other advisers that may need to be involved, provide valuable sector expertise as well as conduct a tailored due diligence exercise.

  1. Is your bank global

It may also be worthwhile assessing your banking relationships. Will your existing bank(s) be able to service you adequately and do they have a presence in the UK? Working with a bank who has a presence and breadth of services across sectors is vital, even down to the fundamental differences that your sector needs to be supported with. Therefore, it is important to assess your relationships in good time.

  1. Create a credible project team with authority to execute documents and properly project manage the inward investment

As with any M&A transaction, investing in the UK will consume management’s time and resources. During the project it is important to have a committed and dedicated team who have board level authority. Project management teams should ideally include management, outside advisers and operational experts.

Negotiations, even at the preliminary stage, can be lengthy with long periods of silence between key stages. It is therefore important to keep communication channels open at senior levels. We believe a corporate transaction is a significant milestone in a business’s lifecycle and therefore board level buy-in and signoffs should be timely obtained.

  1. Innovative solutions can minimise or avoid deal leakages

UK M&A activity remains one of the highest globally; the UK economy is one of the strongest and most innovative G7 economies.  Innovations in transactions continue apace as often the headline value is not always the purchase price paid.

Innovations include the use of locked boxes, warranty and indemnity insurance, escrow accounts, deferred consideration, buy out of certain obligations by a third party (e.g. pension obligations), corporate loan notes, asset sales and subsidiary swaps amongst other ways used to minimise deal leakages.