The Times asks for our views for its special report on the 2015 outlook for M&A

The UK is proving to be an increasingly popular target for foreign investors seeking a business opportunity, writes Sally Percy.

UK property famously appeals to foreign buyers, but they like to snap up our businesses too. Research by law firm Allen & Overy found that in the third quarter of this year, the UK was the world’s second most popular destination for inbound investment after the United States.

The fact that UK businesses are an attractive target for overseas companies is hardly surprising, says Daniel Domberger, a partner at corporate finance advisory firm Livingstone. “It’s a welcoming climate for business with well-established legal precedents for the mechanisms of M&A, which not all jurisdictions have. And it’s relatively easy to do what you want with the business once you’ve acquired it, in contrast to many European countries.”

Preparing for a Sale

According to Mr Domberger, overseas buyers are generally looking for a “solid, well-run business with a demonstrable track record of growth and demonstrable ongoing prospects”.

He continues: “For a sensible acquirer, the acquisition will always start with the strategic objectives. There may be a checklist of nice characteristics that you would like your acquisition target to have, but if these don’t fit with your overall strategy, then they are all effectively irrelevant.” Mr Domberger also highlights the importance of cultural fit since investors will often want the team running the business to remain in place once a transaction has completed.

Mr Domberger adds: “There is a lot of housekeeping that you should ideally begin to think about 18 months before you start on a sale. Make sure your contracts are properly documented and your employment contracts are in order. And make sure your IP [intellectual property] ownership can be demonstrated and validated.”

Anyone who is selling a business can expect to invest significant time and money in the process because they will need to build rapport with the buyer and respond to their queries. But they shouldn’t focus on the sale to the extent that they take their eye off what’s happening in their business.

Case Study – The One That Got Away

US pharmaceutical giant Pfizer’s attempt to take over its UK-based rival AstraZeneca was arguably the biggest M&A flop of 2014. It was also a public relations disaster.

If Pfizer had managed to pull off the £70 billion transaction, it would have created the world’s largest pharmaceuticals company. Instead, the deal came spectacularly off the rails in May after it attracted negative headlines and political scrutiny on both sides of the Atlantic.

At the heart of the controversy was Pfizer’s plan to follow a tax inversion strategy by transferring its headquarters to the UK in order to benefit from a lower corporate tax rate. Not only did the UK public disapprove of this, they also had concerns about the threat the deal posed to UK jobs and skills. A poll by trade union Unite found that just 14 per cent of people in the UK thought the deal was in the public interest.

There is also a lot to be said for keeping your head down. There are still a number of deals taking place where tax-inversion strategies are a contributing factor. But because these deals have a lower profile than Pfizer’s proposed takeover of AstraZeneca, they are more likely to reach completion. As partner at corporate finance advisory firm Livingstone Partners, Daniel Domberger, puts it: “The larger the deal and the greater the political scrutiny, the greater the risk.”

On a final note, it is not inconceivable that Pfizer will come shopping for AstraZeneca again, although the chances of this happening have probably diminished after the US government tightened rules to discourage tax inversions.

To download the full report, click on the PDF below:

ma_outlook_2015_the_time_18_november_1


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