While current tight market conditions might be putting a damper on large merger and acquisition transactions, they are providing an excellent opportunity for entrepreneurs, according to Soria Hay, executive director of integrated equity and debt specialists Bravura.
"When market conditions are difficult and companies are in distress, the best business units within a company are often bought out, an example of which is the current sale of individual business units by technology company MGX," Hay explains. "Buyers are, however, conservative at the moment, so it may be very difficult to find a single buyer who is prepared to take on a whole company."
According to Hay, this presents an ideal opportunity to entrepreneurs to put together a reasonably inexpensive offer. Entrepreneurs could include management, who may wish to buy themselves out of the company by purchasing thriving divisions or business units; or third party purchasers, who stand outside of the business, but who have knowledge of the woes of the company.
Such transactions are the order of the day at the moment, with business confidence floundering on the back of low equity markets, particularly in the IT industry.
Hay believes that entrepreneurs are best served by dealing with boutique corporate advisors who are better placed than larger institutions to provide personalised service at a high level of industry-specific expertise. "Entrepreneurs should consider approaching boutiques like ours to find out about pockets of healthy business within a company as well as the ideal manner in which to structure a potential transaction," Hay advises.
Hay further advises that when structuring a deal, a combination of both equity and debt should be used. "Debt is much cheaper than equity at the moment," she says. Again the role of the advisor needs to be considered. Hay states that "In both the UK and Australia investment banks are seen as having a specific role, which is to fund transactions, while corporate advisors are employed to provide strategic industry advice. In both countries, the market accepts that to obtain the best results these two aspects of transactions are not necessarily wrapped up together." As an example, Hay points out that when an investment bank is involved in a transaction it normally also funds it, which means that the client may not be getting the best rate available. Boutiques, on the other hand, are free to shop around for competitive rates from a number of banks
It is always important to find a specialist advisor who understands the company`s industry, knows the private equity players in the market and is able to provide specialist personalised advice. However, this importance escalates when an entrepreneur is considering structuring a hybrid equity-debt deal.
The potential success of a transaction, is therefore dependent not only on the ability to identify the opportunity for a transaction, but also on obtaining appropriate and accurate advice on the best way of structuring and implementing the transaction.
With attention to these considerations, it is Bravura`s belief that entrepreneurial opportunities abound at present.
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