Page 26 - PWM2024_September Ebook

BETTER BUSINESS

Two become

one

It’s not hard to find examples of mergers and
acquisitions (M&A) within the print and related sec-
tors. This year alone Printweek has highlighted at
least 16 instances involving two Claverley Group
subsidiaries and DS Smith and Mondi (February), by
Adam Bernstein related areas, noted in March 2024
T that despite headwinds of “steadily
here are, of course, others
doing the same. But for
rising interest rates, inflationary
those new to the process,
pressures, geopolitical uncertainty,
what does it involve?
In summary, M&A
and regulatory actions” that saw
involves transactions
where two companies combine in deals drop in volume, there were
nevertheless many transactions that
some form. Though often used inter- did complete. These deals were val-
changeably, mergers and acquisi- ued at £109bn in 2023, albeit down
tions have distinct legal definitions. significantly from £191bn in 2022.
A merger occurs when two compa- Kavanagh points out that because
nies of similar size join to create a M&A is the process of buying and/or
new single entity. An acquisition selling a business or its assets, “it’s
happens when a, typically larger, just as relevant and applicable for
company takes over a smaller one, SMEs as it is for global multination-
absorbing the smaller firm. als and blue-chip corporations”. In
Andrew Kavanagh, a partner and other words, whenever there is a
member of the Corporate & value transaction whereby one busi-
Commercial team at Bishop & ness acquires the assets or shares of company to the group, or to consolidate their market position by buying
Sewell, reckons that there’s “a cer- another, it’s an M&A. out a competitor”.
tain mystique around M&A in the And from a practical standpoint,
UK, and the term is something of a Paul Taylor, a partner in the corpo- Considerations
misnomer when applied to our cor- rate department of Fox Williams, Many sales take the form of a share sale rather than an asset sale. The for-
porate law”. He tells how ‘M&A’ is, in says that deal success depends on mer transfers ownership interests in the company, whereas the latter
essence, an imported acronym from understanding what a M&A seeks to means the sale of assets and business to another company.
the US where it covers the process of accomplish. For many he says that Taylor says that there are benefits and drawbacks to each, but a key
buying and/or selling a business or its “the goal is to achieve a clean exit driver is tax: “A share sale may give rise to capital gains tax on the profits
assets. He contrasts that with the from a business. But some may wish made. An asset sale will result in corporation tax on the proceeds of the sale
meaning on this side of the Atlantic: to stay on and become a part-owner made by the company. Once the company has paid the corporation tax, the
“In the UK, we generally focus on of a bigger business that makes the
acquisitions where one distinct legal acquisition”. proceeds of the sale can then be distributed, but if the owners are individu-
entity undertakes to purchase als, they will be charged income tax on the proceeds.” In effect, he warns
another. In the US, mergers are also Kavanagh thinks the same. that there can be double taxation on an asset sale which is why share sales
common, where two entities com- However, he adds that a seller may are preferred.
bine into a single new entity.” also have other considerations in For Kavanagh, the issue that decides which route is taken relates to
M&A deals can be either friendly mind such as how their staff or exist- whether the buyer wants to take over the entire business or cherry-pick the
or hostile, based on whether the tar- ing customers will be treated going best parts. As he explains, there are two key questions: “Where does the
get company’s board approves the forward, or whether to be involved buyer see the value of the transaction and what is acceptable from the sell-
transaction. for a transition period. er’s perspective?”
And from a buyer’s perspective,
Deals done Kavanagh suggests that they “may be Regardless, he identifies a major issue – valuation.
M&A activity is big business. IFLR, looking to grow their business by “Traded companies,” he says, “are listed on a regulated market/stock
an online publication that covers acquiring a new service or product market and so the value of the shares is used to dictate the value of the busi-
financial regulation, M&A, ESG and offering or by adding a profitable ness. But for private companies, other metrics may be used to calculate the

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