You have to collect a huge number of documents that concern your company, even indirectly. Then, another employee from another company has to check it all; all the contracts have to be done correctly, and everything else. This used to be quite a complicated process, but today, with the influence of modern information technology, it has become much easier. The best data room providers can provide you with exceptional opportunities to optimize your time and automate this process. Read on to learn more.

Who can use VDRs for M&As and how?

The technology behind virtual data rooms is distinguished by a wealth of functionality and a relatively flexible application for the majority of business operations that take place within a certain firm. You don't need to be concerned about the nature of your business. For whatever reason, several business owners believe that they might not be able to permanently employ virtual data rooms for mergers and acquisitions in their organization. This is an error and one that happens rather frequently. Right now, most firms of any size can use this technology.

You will undoubtedly receive a good response to your question about whether a virtual data room can assist you in navigating the merger and acquisition process. You can accomplish the following tasks with the aid of a virtual data room review:

● Your coworkers who assist you in the merger takeover procedure will adore how simple it is to deal with the documentation now and how well it is laid out. In addition to using the full potential of contemporary technology, it helps to drastically reduce time, as noted in the case of due diligence. Additionally, the majority of virtual data rooms contain high-tech encryption and other deterrent security measures that prevent hackers from obtaining any information from your business.

● Due diligence will be carried out pretty swiftly and without the trouble you previously experienced. The technology being discussed in particular, which is modern, is advanced since it maximizes time. For contemporary businesses, time is the most valuable resource since failing to save time results in significant financial loss. By using data room software, you may nearly automatically compile all the paperwork needed for due diligence, save it for the future, and establish a safe environment where sensitive information can't be taken by unauthorized parties.

● Additionally, this technology will aid business owners in the merger and acquisition procedure itself. Because some businesses are adaptable and others are not, this technique has gained a lot of popularity in recent years. As a result, some businesses succeed in the market while others fail. This procedure is what makes mergers and acquisitions so common in today's business world. You may be confident that after installing virtual data rooms, your business will be nimble. For third parties that work with you on the issue, all of the material you have will be safeguarded and presented most practically.

Even if we do not particularly take mergers and acquisitions into account, all of these aspects are crucial in the process of going through any company deal. Entrepreneurs assert that they are ecstatic about using this software. Independent studies have shown that all businesses that have adopted this technology are growing much faster than similar companies that use traditional management.

Reasons why you should try this technology in the M&A process

Today's year will be the year of modern technology, which is being developed at an even greater rate than it was in 2022. The popularity of modern technology and enterprise solutions for automating the entire workflow is no accident. Today's economic crisis, which has been caused by a multitude of factors, is forcing companies to move to fully centralized and digital power. What does this mean for corporate executives? It means that you must adapt to the modern conditions that the outside world is putting up with. Virtual data rooms are one tool and one solution for adapting your business to these conditions. Moreover, if things change in the future, the best virtual data room providers can help you adapt to those changes as well. This is not only an active tool but also a preventative one.

Here we give you the top five reasons why you should try a virtual data room within your company. These reasons will be described below:

● As mentioned above, a virtual data room allows you to adapt your business to today's environment. This is one of the important reasons why most entrepreneurs buy it and keep it in their company indefinitely. If we're talking about routine work, a virtual data room allows you to automate and optimize any process that goes on within the company. Even if you look at any subjective process, like communication level, the data room vendors fix that. This is a proven fact from independent researchers and users of this enterprise software and solution.

● The next reason to try this solution is to automate short-term business processes like mergers and acquisitions or crowdfunding campaigns. And you may not have known, but most entrepreneurs are afraid to buy a virtual data room permanently. There are reasons for that, like expensive technology and some installation complexity. Entrepreneurs are starting to buy virtual data rooms as temporary tools to help with business transactions. In addition, once a business transaction has passed, most entrepreneurs realize the importance of virtual data rooms even for routine tasks and continue to use the technology indefinitely. A virtual data room is used to automate business processes and to demonstrate due diligence. It significantly reduces the time and costs that you would need to cover if you were using traditional management.

● Technology is evolving. Online data room software is one of the great embodiments of modern technology that is constantly improving. If you are a conscious entrepreneur who understands the importance of technologies like artificial intelligence or blockchain in corporate tasks, then a virtual data room is for you. Most developers are now using massive artificial intelligence to help optimize costs within the company.

● It helps you connect with your customers. You'll be given a huge variety of tools to help you communicate with customers and understand their real needs. This was quite difficult to do before because your job evaluations were not objective. The data room services provide an overabundance of tools that let you know the real mood of your customers and help improve your business with feedback.

● Your employees will work together and make decisions faster. All of this is accomplished through technology, such as electronic document signing and, in general, finding documents completely in the digital space. This is convenient and secure at the same time. Paper, at the moment, is not a secure device to store any information. It can be stolen or destroyed. In some cases, it can be done without leaving any trace for investigation. This is not possible with digital technology, where the offender always leaves a digital footprint.

These five reasons are the most important. Notice the fact that the reasons don't end there. If you are an entrepreneur with goals for the future of your company, then you just have to look at the possibility of implementing a virtual data room into your business structure.

Conclusion

Future-oriented, the virtual data room trend is not even a moot point. According to unbiased researchers, this technology will only advance in the interest of enhancing business communication and data security. Several technologies, including artificial intelligence and frameworks, are being utilized to enhance departmental communication.

For any company's growth and development as well as the success of the M&A process, departmental communication is a crucial first step. If a worker doesn't comprehend their supervisor, the business will perform poorly and incur significant losses. The electronic data room assists you in solving this problem in the most convenient way for you and adjusting to the changing world as well as your colleagues with whom you are working on the M&A deal.

FunBox is an amusement arcade business that recently opened an outlet at Gravity Wandsworth in London and has another location scheduled to open in Liverpool later this year, with a third location reportedly in the works for London’s Westfield Stratford shopping centre. Its acquisition by Urban Fun spanned three jurisdictions across the UK, US and Germany.

A holding company established by Sega Amusements International CEO Paul Williams, Urban Fun will retain FunBox founders Albert Corrigan and MatthewDeith on its leadership board following the acquisition. Paul Williams will remain CEO of Urban Fun, with Matthew Deith becoming managing director and Albert Corrigan becoming operations director.

In addition to the services provided to FunBox Gmbh by Werner, Luger & Partner, global law firm Taylor Vinters advised sister company FunBox UK, while Menn Law Firm Ltd advised US software company Garner Green on the sale of intellectual property rights. Menzies advised the buyer.

Headquartered in Essex, EOL was founded by Jan Geoghegan in 1996 and has since grown into a highly accredited provider of ITAD and technology recycling services. It has built up long-standing relationships with a number of blue chip clients and government departments.

Tier 1 is a Manchester-based firm specialising in secure ITAD and refurbishment. It supports a wide
range of clients in tackling e-waste issues.

Gepp Solicitors’ partner Alexandra Dean provided legal advice for EOL shareholders along with Forward Corporate Finance and TVM Accountancy.

An Interview with ALEXANDRA DEAN

Partner at Gepp Solicitors

Can you share more about the role you played in advising EOL shareholders during this transaction?

My role was to lead the multi-disciplinary corporate team at Gepp and manage the transaction through to
completion, including the negotiating and drafting of key documents and advising our clients throughout the
process. Team involvement is essential for these deals and I was assisted by Marc Dorset (tax director), Callum Hall (associate), Josh Fresle (trainee solicitor) and Jemma Bennett and Gemma Wilkinson (paralegals).

What skills and professional experience did you draw upon as part of this process?

I have worked on numerous high-value and complex mergers and acquisitions over the years. Each one has its own driver and presents unique challenges and solutions. This experience inevitably enables you to continually develop your own skillset, which I was able to draw on when acting for the EOL shareholders. There is a need for critical thinking, understanding client goals and a desire to work fast pace, particularly in the lead up to completion. Whilst M&A is not for the faint-hearted, there is a real sense of team achievement and satisfaction for the client when the deal completes.

How did you work with other legal counsel to ensure the success of the merger?

Working collaboratively with the wider team, including the other party’s legal representative, was essential to meet our clients’ objectives in the most cost-effective and time efficient manner. We worked closely with Sarah Moores and her team at Corporate Forward Finance and Cathy Sawyer at TVM Accountants. Both were instrumental in the parties reaching agreement on the financial elements of the deal and the speed at which completion took place.

Did you encounter any significant challenges while undertaking this work? If so, how did you overcome them?

Given the nature of the transaction, we had a tight deadline to meet; to achieve this, we ensured from the outset that we were organised. Each team member understood their role and responsibilities in the process and had clear objectives to meet. That way we stayed ahead of the curve. One particular challenge was the application of the new National Security and Investment Act 2021, which had only been in force since January this year. There was a need to swiftly get to grips with and analyse this piece of legislation and its application to EOL, which we could not have done without the meticulous attention to detail provided by our
clients – in particular, Dan Smith.

What impact do you expect the successful conclusion of this merger will have on the ITAD and technology recycling space in the UK?

Our unprecedented demand for electronics has created a growing need for specialist ITAD and technology recycling. This merger means the creation of the largest specialist ITAD in the UK and brings together two of the pioneers of the industry, therefore offering a diverse understanding of, and solutions to, the need for a business to have an enterprise solution relating to its unwanted devices. This merger represents a joining of ‘best of breeds’ and is a major milestone in the positioning of EOL in its specialist market.

Do you expect to work on similar operations in the remainder of 2022 or beyond?

We have experienced growth in M&A instructions in the last two years despite the uncertainty that Brexit and COVID-19 have brought and still have a good pipeline of work. We expect 2022 to remain strong for these types of deals, particularly given ongoing demand for technology and data-driven assets. We expect that economic optimism might be shaken by the current rise in interest rates and inflation that might delay some deals, but overall we are excited about the next deal that we become involved with.

The Takeover Panel was required to look again at the use of conditions, including MAC, a subject on which it last provided substantive comment and guidance in 2001. Dean Harper, Consultant Solicitor at McCarthy Denning, explores the incident and what it means for M&A.

On 12 March 2020, Brigadier Acquisition Company Limited announced a recommended cash offer for Moss Bros at 22p per share, valuing the target at £22.6 million. The takeover was structured as a scheme of arrangement under Part 26 of the Companies Act 2006 requiring both court and 75% shareholder approval. Unlike in the more straight-forward offer structure, the target under a scheme has more control over the process and is required to prepare much of the scheme documentation. A scheme document, setting out the proposals and including the conditions to the Brigadier offer, was duly prepared and sent to Moss Bros’ shareholders on 7 April and a shareholder meeting called to approve the scheme.

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced. In the period between the announcement of the offer and the publication of the scheme document, the Government introduced the Coronavirus lockdown on 23 March. Moss Bros issued an announcement only a few days later on 25 March 2020 that, having seen a “significant reduction in footfall across our retail outlets”, the decision had been taken to temporarily close all its stores until further notice. The announcement also stated that “The Group expects that the effects of the COVID-19 will result in a significant reduction in revenue and profitability for the year ending 30 January 2021” but to which it added “…it is too early to determine the precise quantum at this stage.”

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced.

On 22 April, Moss Bros announced that it had been informed by Brigadier that it was seeking a ruling from the Panel in order to invoke a condition of its offer and lapse its offer for Moss Bros. Withdrawing or lapsing an offer after it has been announced requires the consent of the Panel. The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

The Brigadier Offer was made subject to a long list of conditions, some quite specific and some more general. One of those conditions was a MAC condition: “there having been…no material adverse change and no circumstances having arisen which would reasonably be expected to result in any material adverse change in, the business, assets, financial or trading position of profits, operational performance or prospects of any member of the Wider Moss Bros Group which is material in the context of the Wider Moss Bros Group taken as a whole”. Although it was not been made public at the time, we now know that Brigadier sought to invoke a number of conditions, including this MAC condition.

They also tried to rely on a condition relating to the enactment of legislation which materially adversely affected the business, finances or prospects of Moss Bros, the condition concerning Moss Bros admitting inability to pay its debts, stopping payment of debts  or seeking to restructure its indebtedness, and, finally one that required no liability having arisen or increased which would have a material adverse effect on the Moss Bros Group. All of these conditions required the relevant matter to have a material and adverse effect so they could all be generally characterised as MAC conditions.

The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

Notwithstanding Brigadier’s request that the Panel allow it to withdraw its offer, Moss Bros announced on 23 April that there would be no change in the offer timetable and went ahead with the Court Meeting and the General Meeting of shareholders on 29 April (although, due to social distancing rules, shareholders were told to stay away and submit their votes by proxy). At the meeting, the scheme was approved and the directors were authorised to take all such action as they may consider necessary or appropriate for carrying the Scheme into effect. In the meantime, the Panel was still considering whether to allow Brigadier to lapse its offer on the basis of the MAC condition.

Conditions to an offer are governed by Rule 13 of the City Code on Takeovers & Mergers. Rule 13.5(a) of the Code states that “An offeror should not invoke any condition or pre-condition so as to cause the offer not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to invoke a condition or pre-condition are of material significance to the offeror in the context of the offer.”

Guidance on the scope and effect of Code Rule 13(a) has been given by the Panel in Practice Statement No. 5, issued in 2001 (and updated in 2004 and 2011) following the request by WPP Group plc to lapse its offer for Tempus Group plc as a result of the 9/11 terrorist attacks. In WPP’s view, 9/11 had resulted in a significant deterioration in Tempus’ long-term prospects and this constituted a material adverse change allowing them to use the MAC condition to withdraw their offer.

WPP were unsuccessful and, in fact, the Panel has never allowed an offer to be withdrawn or lapse based on the use of a MAC condition.  Its view is that “…meeting [the] test [of what is material significance] requires an adverse change of very considerable significance striking at the heart of the purpose of the transaction, analogous….to something that would justify frustration of a contract”.

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The Panel has since made it clear that this test does not require the offeror to demonstrate frustration in the legal sense, which is where a contract has become impossible to perform, but the bar to reliance on a MAC Condition is nonetheless set extremely high.

In determining what is of “material significance to the offeror” a matter must be specific and the position has to be considered objectively. Nonetheless, the views of the offeror and other informed parties, such as the offeree, should be given appropriate weight. The burden of proof is on the offeror.

The adverse change must also not be short-term in its effect. The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test. In relation to an acquisition for strategic reasons, the Panel has previously expressed the view that the purchaser is “clearly investing for the long term and therefore something of material significance to such an offer ‘in the context of the offer’ had to be long term”.  A Brigadier director quoted in the original announcement of the Offer referred to being “excited to contribute our expertise and assist in delivering the current strategy. We see the Acquisition as an opportunity to contribute our expertise to improve Moss Bros’ financial performance and protect its heritage, brand and presence on the UK high street.” This suggests a long-term view of the acquisition and the development of the company in private ownership and will not have assisted Brigadier’s chances of obtaining a favourable ruling from the Panel.

Moss Bros resisted the attempt to lapse the offer and indicated that it planned to “take all necessary action” to convince the Panel that Brigadier did not have a valid reason to allow it to revoke its offer and that they believed “the requirements [to lapse an offer on the basis of a condition] have not been met and that the offer should not therefore be permitted to lapse”. This view received support from major Moss Bros shareholders and the matter was identified by some as a test of the City’s resolve and the view has been expressed that allowing the Brigadier Offer to be lapse in these circumstances could start a worrying trend for future deals.

The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test.

Given the long-term strategic reasons for the acquisition, the difficulty in assessing the likely long-term effect of the current crisis on profitability, the likelihood that lockdown restrictions on non-food retail may be lifted in some way in the relatively near future and the chance of Moss Bros recovering from the damage the lockdown has caused, coupled with the not unreasonable expectation that Brigadier had or should have priced-in the potential impact of the coronavirus pandemic, it was always likely that the Panel would deny Brigadier the ability to lapse their Offer. The history of attempts to rely on a MAC condition to withdraw or lapse an offer was not on Brigadier’s side and the criteria to allow reliance on a condition of this type is very strict and Brigadier was always likely to fall short.

It came as no surprise to many when The Panel announced on 19 May that, having considered Brigadier’s submissions as to why it should be permitted to lapse its bid and Moss Bros’ submissions as to why it believed there were no grounds for allowing it, Brigadier had not established “that the circumstances which give rise to its right to invoke the relevant conditions are of material significance to it in the context of its offer” and that Brigadier should not, therefore, be permitted to invoke any of the conditions or withdraw its offer.

This serves to re-enforce the requirements for bidders to recognise that once a Rule 2.7 announcement of a firm intention to make an offer is made, reliance on a condition, other than the acceptance condition and regulatory approvals, is extremely unlikely to enable the offer to be withdrawn unless the impact is considerable and ,it seems, even the impact and consequences of something as momentous as the coronavirus pandemic may not be sufficient.  The Panel Statement noted, however, that Brigadier had been given a short period of time in which to decide whether to request a review of the Panel’s ruling by the Panel’s Hearings Committee and indicated that a further announcement would be made in due course.  Brigadier initially requested a review of the Panel Executive’s ruling but then withdrew its request and the Hearings Committee issued a statement on 26 May 2020 that, accordingly, the Panel Executive’s ruling stands.  It always seemed unlikely that Brigadier would obtain a more favourable result from such a review should their request not have been withdrawn and that no doubt figured in their decision to withdraw it.

Liberty Global and Telefonica, the respective owners of Virgin Media and O2, have announced their intention to merge, converging their services into a single telecommunications giant likely to present a major challenge to BT.

O2 is the UK’s largest phone company, with 34.5 million users on its network that covers Tesco Mobile, Sky Mobile and Giffgaff. Virgin Media has around 3 million mobile users and 5.3 million broadband and pay-television subscribers.

The combination of O2’s 4G and 5G infrastructure and Virgin Media’s ultrafast cable network will create a joint venture worth upwards of £31 billion.

Liberty Global’s chief executive, Mark Fries, emphasised the potential that the merger could hold. “Virgin Media has redefined broadband and entertainment in the UK with lightning-fast speeds and the most innovative video platform. And O2 is widely recognised as the most reliable and admired mobile operator in the UK,” he said in a statement.

Jose Maria Alvarez-Pallette, chief executive of Telefonica, described the coming partnership as “a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical.”

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Analysts have begun to speculate on other possible motivations behind the merger, and its likelihood of success. Professor John Colley, Associate Dean at Warwick Business School, suggested that the move may be “opportunistic”, stemming from the focus of the Competition and Markets Authority (CMA) shifting its focus towards business survival during the COVID-19 crisis rather than the protection of competitive markets.

“However O2 and Virgin Media are businesses that are benefitting from the present covid-induced state of affairs”, Colley continued. “One suspects that the CMA will take a keen interest in this merger.”

Mike Kiersey, Principal Technologist at Boomi, a Dell Technologies business, commented that the success of the merger will likely hinge on the two companies’ ability to bring their respective infrastructures into harmony with each other:

“To establish an efficient operating state, a clear integration framework must be put in place, whether that means the entities remain separate or embrace a purely integrated approach. In most cases, a symbiosis of both IT departments will be the likely result.”

Fiat Chrysler (FCA) and Peugeot-owner PSA have officially signed the papers to join via a binding agreement for a 50/50 merger of stock. PSA shareholders are set to receive 1.742 shares in the new and merged company, for each PSA share they already own. Vice versa, each FCA shareholder will receive 1 share of the new firm, for each FCA share they already hold.

The deal will conclude in around 15 months, creating a joint firm estimated at €170 billion in sales per year, or 8.7 million vehicles sold each year. As a consequence of the deal being struck, shares in PSA have risen 1.5% in Paris, whilst FCA stocks rose 0.3% in Milan.

A joint statement clarified that this deal will allow both firms to “address the challenge of shaping the new era of sustainable mobility,” whilst saving the companies around €3.7bn a year.

“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology, and services,” Carlos Tavares, chairman of Peugeot-maker PSA, said in the joint statement.

Moving forward, Tavares will take up the role as CEO of the merged company for the next five years, taking a seat on the board.

This week we learnt that two of the UK’s top supermarkets are merging, shaking up grocery shopping for generations to come. The £13 Billion merger between Walmart-owned Asda and Sainsbury’s, which recently bought out Nectar, is set to create a grocery powerhouse that can finally compete against Tesco Stores.

Following the announcement shares rocketed and the public was happy to hear prices would receive a 10% cut as a consequence of the merger. Rpeorts indicate no jobs will be cut, nor will any stores be closed. So what is this merger all about?

Finance Monthly spoke to Dr Naaguesh Appadu, Research Fellow at Cass Business School and member of the Mergers & Acquisitions Research Centre, who comments on Sainsbury's and Asda agreeing to £13bn merger.

Dr Naaguesh Appad said: “This deal is about market share. Neither Sainsbury’s nor Asda can afford to stay quiet. You just have to look at the grocery sector right now: Tesco has acquired Booker and Morrisons supplies products to Amazon. Therefore, it is key to show the leadership in terms of groceries for the Sainsbury’s/Asda merger to happen. It should be noted that they neither company can grow organically, and they don’t have the option of staying away Tesco, from the current market leader.

“This deal with see the consumer win two-fold. First, customers will be able to access more products and second, they’ll enjoy lower prices (execs have stated 10%) on common products due to competition on suppliers. It will be interesting to see how this plays out in terms of competition, now that executives have stated there are no plans to close Sainsbury's or Asda stores.”

Uber is close to securing an investment deal with Softbank, which if succesful, could amount to £10bn according to reports.

TechCrunch were given the following statement: “We’ve entered into an agreement with a consortium led by SoftBank and Dragoneer on a potential investment. We believe this agreement is a strong vote of confidence in Uber’s long-term potential… strengthening our corporate governance.”

Uber have said the money is going to aid them in their international expansion and technological advancements. The aim of the expansion is partly due to the competition they are currently experiencing.

As well as an initial $1bn investment, Softbank will attempt to buy up £6.8bn ($9bn) worth of shares, resulting in a total stake of 14% in Uber. However, this is reliant on the agreement of a fairly complex tender offer.

The tender offer is set to take place on November 28th and could go on for 20 business days, making it possibly the biggest secondary transaction ever.

Given that any deal would be reliant on existing Uber shareholders selling their stakes, the process will require more work before it can be finalised. To help spread the word about their tender offer to existing shareholders including venture capitalists and ex-employees, Uber plan on putting adverts into newspapers.

According to TechCrunch, the following statement was given to reporters via Softbank on behalf of Rajeev Misra, CEO of SoftBank Investment Advisors: “After a long and arduous process of several months it looks like Uber and its shareholders have agreed to commence with a tender process and engage with SoftBank. By no means is our investment decided. We are interested in Uber but the final deal will depend on the tender price and a minimum percentage shareholding for SoftBank.”

The statement made by Softbank reveals that the deal has not been confirmed and will depend on the agreement of the tender price and percentage shareholding for Softbank.

This investment is seen by many as potentially crucial for Uber. Up until now, employees were unable to sell shares of the company and this investment will aid them in turning paper riches into cash.

It’s been a difficult year for Uber so far with legal battles involving Alphabets self-driving car division, the loss of their licence to operate in London and attacks on their company culture. The CEO Travis Kalanick was also forced to step down in June this year amid several scandals and legal wrangling with investors.

The investment made by Softbank might not only provide a welcome boost at a difficult time, it could very well be vital for Ubers future.

Jumping into a big company merger can be daunting, and while legal and financial steps take place, actual company operations, staff and systems are also a massive part of the merger. Here Ian Currie, ‎Director of EMEA business development, Dell Boomi walks Finance Monthly through some key considerations to make in the internal merger process.

Merger and acquisition (M&A) activity is booming. One thing is for certain there are a number of considerations business leaders need to take before embarking on a merger or acquisition. In particular, in the current political and economic climate, it is critical for investors to analyse all aspects of the company in question – from its value to customers, its business model and growth plans, all the way through to its existing IT infrastructure.

Digital or die

In today’s digital age, ensuring that IT not only works, but enables and drives business performance has never been more important in a merger or acquisition. A slick, digital-first approach ultimately sets one company apart from the competition.

Failure to get digital right can have a disastrous impact for any company. New players in the industry have been designed with a ‘data-first’ approach and are agile and flexible enough to meet customer expectations. An inability for legacy businesses to digitally transform and adapt at speed - or at least faster than the competition - is, therefore, one of the main reasons businesses fail. In fact, two-thirds of executives predicting that 200 Fortune 500 companies will no longer exist in 10 years’ time due to digital disruption.

With this in mind, and as the world becomes increasingly reliant on the digital economy, it is clear that IT should not be an after-thought when considering an acquisition.

However, with some many apps across an organisation and with huge amounts of data sitting in various siloed systems, IT in M&A can be incredibly challenging. Coupling this with the size, scale and complexity of any takeover or merger, how can businesses ensure they are set up for success?

Merging not displacing

Following the completion of a merger, a company’s CEO will typically request the CIO to just ‘combine the IT systems’. This often involves a painfully long procedure in which all data, applications and systems are forced into the incumbents systems. By not necessarily taking into account the complexity and hurdles that must be overcome, these efforts often result in wasted time, lost efficiency and reduced performance.

What’s more, making this change also typically forces the acquired company to alter its business model, potentially altering the aspects of the business that made it such an attractive proposition in the first place. This mindset of one company, essentially, displacing another must change.

A merger shouldn’t be the prerequisite to changing how a business works - after all, they wouldn’t be making the acquisition if the business model needed change. Businesses, therefore, need to consider what each company can bring to the party. For example, while a firm can buy the incumbent’s immediate revenue, it cannot maintain and strengthen its existing customer relationships without real-time, accurate and intuitive business intelligence to ensure its communications with customers and prospects are contextually relevant.

By having a clear understanding of the digital landscape, executives can make smart decisions for new models of working, whereby IT can enhance operations rather than hindering them.

Integration is integral

Making an acquisition should enable firms to ‘buy’ immediate revenue and customer opportunities, but without the aid of business intelligence, companies may struggle to build on, or even, maintain customer relationships. After all, it is widely accepted that the easiest way to grow a company is to cross-sell and upsell to its existing customer base.

However, with customer data in silos, organisations cannot keep track of what information their teams are putting in front of them and how the relationship is being maintained. Without this knowledge, relationships can be weakened or even finalised. With dedicated technology to integrate data, apps and systems quickly and efficiently, companies can quickly regain control, ensuring all the dots are joined up.

Integration solutions prove invaluable here. They provide a fast and flexible user experience, centralising the creation, maintenance and updating of integrations through simple drag-and-drop interfaces that eliminate the need for coding - bringing both sets of date, apps and systems together at speed and with ease.

Only by ensuring processes, applications and data can be integrated quickly and effectively can companies truly benefit from their newly merged firms. If the predictions are correct and more companies look to merge in the coming months, it will be critical for businesses to look to integration solution to join the dots and set themselves up for success.

In today's low interest rate environment, leverage remains the smart option for financing mid-market acquisitions. For starters, it satisfies the corporate desire for enhanced returns on equity and cash conservation. Moreover, the competition for deals among established lenders and the many recent entrants into the market has driven down loan pricing and diversified product offerings making a tailor-made solution more achievable than ever before.

Lee Federman, Partner in the Banking and Finance team at law firm Dentons, here sets out some of the key issues borrowers should be aware of before embarking on a search for the right financing arrangements.

Evolving lending landscape

While established clearing and investment bank lenders remain active, they have been increasingly limited in their activities by regulatory and capital constraints. This has allowed debt funds such as Ares, Alcentra and KKR, to increase their market share with fixed income becoming the strategic asset of choice for investors. For a higher coupon, specialist debt funds have been able to offer increased leverage, larger bilateral commitments and greater covenant headroom and flexibility. So called 'challenger banks' such as OakNorth and Metro are also increasingly visible, particularly at the smaller end of the market.

Cost of funds

The primary financing consideration for a borrower will be the overall cost of funds. Lenders' 'all in yield' will likely include a fixed margin (set over LIBOR or EURIBOR potentially ratcheting up or down in line with the borrower group's prevailing leverage), arrangement fees payable at closing and any other periodic fees such as commitment fees on working capital facilities. Fees will also arise if a hedging product such as a cap or collar is purchased to protect against fluctuations in the underlying interest rate.

In a market currently suffering from a lack of M&A activity, strong borrowers often negotiate with debt providers in parallel to create the competitive tension needed to push down pricing and improve terms – specialist debt advisory firms can further facilitate this process.

Cash retention

Cash retention will also be at the forefront of the CFO's mind. Banks typically expect at least part of their term facilities to amortise quarterly to aid deleveraging and reduce refinancing risk. Some debt funds however may allow a more relaxed amortisation profile or potentially even a single bullet repayment at maturity. Debt funds rely on a stable coupon to satisfy their investors' return requirements and are often comfortable for available cash to remain in the business for reinvestment and income generation purposes.

Mandatory prepayments

All lenders will expect their loans to be immediately prepayable upon a change of control of the borrower or where it becomes unlawful for the lender to continue to lend. Debt funds may however be more relaxed than banks on mandatory prepayments out of net disposal or insurance proceeds and also in relation to the annual excess cashflow sweep after debt service (the amount of which is usually determined in line with leverage levels).

Financial covenants

Borrowers will have to comply with up to four financial covenants on an acquisition financing, each of which is designed to test its financial health and serve as an early warning sign if its condition starts to deteriorate:

• Leverage. This is the ratio of net debt to earnings and tests the overall sustainability of debt in the borrower's business. It is typically calculated on an adjusted basis to take into account acquisitions or disposals over the relevant testing period.

• Cashflow Cover. This is essentially a liquidity ratio matching the Group's operating cashflow against its principal and interest debt service obligations (otherwise known as the 1:1 test).

• Interest Cover. This is the ratio of earnings to interest costs and demonstrates the ease with which the borrower can meet its cash pay interest expense from operating profits.

• Capex. This is an annual limit on capital expenditure spend set with limited headroom against the borrower's business plan. Stronger borrowers will seek further operational flexibility by carrying forward and/or carrying back unused capex allowances to preceding and/or succeeding financial years.

It is important that the financial covenant related definitions in the loan documentation conform to the agreed financial model and the expectations of the CFO. Each of these financial covenants (with the exception of the capex covenant) is tested quarterly looking back at the results from the last 12 months.

In the current competitive lending market, some lenders may be willing to drop some of these four covenants (‘covenant loose’) or all of them (‘covenant lite’) – the latter is however still fairly rare for mid-market deals

Equity cures

Strong borrowers will seek to negotiate the right to inject new equity into the structure to cure an actual or potential breach of financial covenant and stave off any potential lender enforcement action. To the extent acceptable to the lender, such new money will likely be limited in usage and amount. At least part of it will also have to be applied in prepayment of the loan.

Negative covenants

Negative covenants are another key part of a lender's credit protection. They are designed to restrict the borrower from undertaking certain actions which may cause value leakage out of the borrower's group (e.g. disposals, acquisitions, debt incurrence, distributions to shareholders) and are subject to a set of pre-agreed exceptions and monetary baskets. The borrower will focus on these exceptions more than any other area of the loan documentation to ensure that it has appropriate flexibility to operate unfettered in the ordinary course of its business and to implement its business plan and growth objectives.

Security and guarantees

Lenders' principal downside protection comes in the form of asset security and guarantees. Typically, lenders will expect to receive security and guarantees from entities in the group representing at least 85% of the earnings, turnover and assets of the relevant group (including share pledges over all material entities). On cross border transactions, local lawyers should always be instructed as early as possible to identify any issues in or limitations to the grant of security or guarantees and a set of agreed security principles should be drawn up.

Financial information

Lenders will always expect a raft of detailed financial information. Monthly management accounts, quarterly financials and annual audited financial statements will be required along with quarterly financial covenant compliance certificates. Borrowers will further be expected to provide a budget, financial model and give an annual presentation on the on-going business and financial performance of the borrower.

Acquisition diligence

Lenders will not typically undertake their own diligence on the target company but they will expect to be able to rely on all due diligence reports prepared for the borrower. This supplements the representations provided to them in the loan agreement. The lender will also expect to be kept informed on the negotiations on the acquisition documents and to receive copies of the signed versions as a closing condition to the loan.

In our April Thought Leader Section, we look at the acquisition of one of Europe’s most-awarded creative independent agencies - Lemz, by Havas Group - one of the world’s largest communication groups. We had the opportunity to interview Adriana Roman-Holly – Director at Ciesco Group, who led the team that advised Lemz. Here she tells us about Ciesco Group’s involvement in the transaction and the challenges along the way, while also discussing the global M&A activity in 2016 and 2017.

Could you tell us a bit about the transaction and Ciesco Group’s involvement in it?

Havas Group (HAV:EN; market cap of €3.0bn), one of the world’s largest communication groups acquired Amsterdam-based Lemz, one of Europe’s most-awarded creative independent agencies.

Widely recognised as a pioneer of the pro-social marketing movement, Lemz uses its innovative creative consulting approach to “help brands make sense” by delivering creative campaigns that are meaningful, purpose-driven and socially relevant.

Building on their successful track record, Lemz shareholders acknowledged the need to address strategic growth options for the company to maximise the future prospects and value of the business. In Havas Group they have found a like-minded partner sharing similar strategic ambitions, passion and culture. Lemz will join forces with Havas Boondoggle, the Group’s existing Amsterdam-based creative agency. The new 80-talent-strong agency, “Havas Lemz”, will leverage on the Group’s Together strategy to build a powerful creative hub.

Ciesco Group acted as exclusive advisors to the shareholders of Lemz. We were mandated to seek a like-minded partner that would enable Lemz to operate on a larger scale and increase their impact on the social good scene, without compromising the high-quality creative output the agency has been known for. Havas Group was identified as the perfect fit in terms of vision, ambition, making sense support and chemistry with Lemz. We pursued a very structured process and managed the end-to-end process - from preparing the business for sale through to negotiation of the sale and purchase agreement on behalf of the shareholders with a major strategic player with complementary strengths.

Given Havas’s commitment to creating meaningful connections between people and brands through creativity, media and innovation and Lemz’s pro-social creative credentials, this transaction makes sense for all involved. It is a huge opportunity for Lemz, its talents and clients to benefit from becoming part of a bigger group. Using the creative firepower of Lemz, Havas can expect to deliver a number of stellar campaigns, while standing for something beyond advertising. The new 80-talent-strong agency Havas-Lemz is set to become the “most meaningful agency in the Netherlands”, a unique hub where ideas, people and talents flourish and turn into impactful integrated creativity.

What were the challenges in relation to finding the best possible partner for Lemz?

 A deal like this will always face multiple challenges. Finding the perfect partner who would share Lemz’s vision and ambitions, managing value expectations and execution risks were all critical. Through our unrivalled experience, individual approach and vast industry knowledge we worked together with Lemz shareholders and provided them with independent, sound advice, efficient execution and direct support throughout the process.

How would you describe 2016’s global M&A activity in technology enabled-media and marketing sectors?

 By all accounts, 2016 was an extraordinary year that brought with it a myriad of opportunities and challenges across the globe and presented a wide scope of issues and events. Despite the tumultuous year, M&A opportunities within the sector remained buoyant and firmly on the agenda of many corporates.

Each year our market intelligence team at Ciesco tracks global M&A transactions in the sector. We tracked 1,175 M&A transactions throughout 2016, an increase of 6% year on year in global deal activity. The announced deal values totaled over $82bn (excluding the three mega-deals), up 36% from the prior year. This marks the third consecutive year in which deal activity has increased. Marketing Technology remained the most active sector in 2016 in the digital, marketing, media and related technology industry. Despite being the most active sector, the number of deals announced fell by 12% to 102 deals (116 in 2015). As with the previous year, the Mobile sector was the second most popular sector behind Marketing Technology. Similarly to Marketing Technology, deal volume in the Mobile sector was also down slightly, from 102 in 2015 to 90 in 2016. The next most popular sectors were Advertising & Creative, Data & Analytics, Public Relations, Digital Media, and eCRM.

This remains an exciting and dynamic sector for M&A with new technology entrants, start-ups offering specific niche disciplines, a broad array of new media channels that are all combining to disrupt conventional models.

What is Ciesco’s outlook for M&A activity in 2017?

 We expect 2017 to be a busy year with new business models developing where their services are powered by sophisticated data capture and analysis and that fuse high quality real-time creative content with integrated media solutions for delivery and measurement through the new media channels. Independent media and data analytics businesses will command a premium valuation in 2017 M&A activity.

We also expect consultancies to continue to make inroads into the marketing sector with an emphasis on strategy/creative and digital services. This will continue to threaten the big agency networks who will struggle to compete with the combination of the traditional and new services now being delivered by the consultancy firms.

About Adriana Roman-Holly

Adriana leads Ciesco’s day to day corporate finance work both originating and working on a wide variety of transactions. Prior to joining Ciesco, she spent 5 years at Pall Mall Capital, a London-based investment banking boutique, handling corporate finance advisory and M&A transactions, as well as working on Equity and Debt placements across a wide range of sectors (business services, leisure, infrastructure, technology, consumer products, etc.). Her earlier career included US experience where she worked on US and international assignments at Brown Gibbons Lang & Company, a leading Midwest investment banking firm, as well as acting as a Project Manager for a London-based global consultancy firm specialising in business intelligence services.

Adriana has a MBA degree in Banking & Finance from Case Western Reserve University (US), as well as an MA in International Economic Relations.

Firm Profile

 Ciesco is a London-based boutique corporate finance advisory firm, specialising in M&A advisory and business strategy for the digital, media, marketing and technology sectors, with coverage of Europe, Asia and North America. Ciesco works with entrepreneurs and global corporates who require specialist advice on domestic or cross-border transactions, divestitures and business strategy, as well as private equity firms looking for growth or exit opportunities for their portfolio companies. Led by practitioners with deep industry experience and expertise within new media and disruptive technologies, Ciesco is able to deliver its clients independent and sound advice and execution, as well as access to an extensive network of direct contacts with high quality investors globally.

Website: http://ciescogroup.com/

Reynolds American Inc. has reached an agreement with British American Tobacco p.l.c. for a $49 billion takeover that would create the world’s largest publicly traded tobacco business. The takeover agreement is currently subject to a $1 billion breakup fee. This merger brings together some of the world’s best-known tobacco brands, from Lucky Strike and Rothmans, to Dunhill and Camel cigarettes.

As of this week, it was agreed that BAT will acquire the 57.8% of RAI common stock that BAT does not currently own for $29.44 per share in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share, currently worth $30.20 per share based on the BAT closing share price as of January 16^th 2017, and the corresponding Dollar-Sterling exchange rate.

The per-share price represents a 26.4% premium to RAI's closing price as of October 20, 2016, the day prior to BAT's public proposal to acquire the outstanding shares that BAT does not currently own. Under the terms of the agreement, RAI shareholders will receive for each share of RAI common stock they own, $29.44 in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share. The BAT American Depositary Shares will be listed on the New York Stock Exchange. RAI shareholders will own approximately 19% of the combined company.

The transaction was approved by the independent directors of RAI who formed a transaction committee to negotiate with BAT, given BAT's existing ownership stake and representation on RAI's board of directors, and by the boards of directors of both companies.

Following the transaction, the combined companies become a stronger, truly global tobacco and Next Generation Products company, delivering sustained long-term profit growth and returns. It will maintain a presence in both profitable developed and high-growth developing markets while bringing together a compelling and complementary global portfolio of strong brands including Newport, Kent and Pall Mall. The companies' combined next-generation product development and R&D capabilities will create an innovative pipeline of vapor and tobacco-heating products, delivering both an array of new product options for adult tobacco consumers, as well as diversified sources of profit growth opportunities for investors.

"Through this transaction, we form an industry leader that will focus on innovation and brand building," said Susan M. Cameron, executive chairman of Reynolds American's board of directors. "This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products."

"The transaction delivers significant value to RAI shareholders, and the independent directors on the transaction committee have unanimously voted in favour of the transaction," said Lionel L. Nowell, III, lead independent director of Reynolds American's board of directors. "This is an agreement that offers a compelling premium to shareholders, as well as continued ownership in a company that is well-positioned for long-term success."

"We look forward to bringing together the two companies' highly complementary cultures and shared commitment to innovation and transformation in our industry," said Debra A. Crew, Reynolds American's president and chief executive officer. "British American Tobacco is the best partner for Reynolds American's next phase of growth, and together the two companies will create the leading portfolio of tobacco and next-generation products for adult tobacco consumers."

"We are very pleased to have reached agreement with the board of Reynolds American as we believe that the combination of our two great companies has a very compelling strategic and financial logic that will provide a lasting benefit to shareholders, employees and all other stakeholders," said Nicandro Durante, British American Tobacco's chief executive officer. "This transaction will not only create a truly global business with a world-class portfolio of tobacco and next-generation products, but will also benefit from the highly talented and experienced employees in both organizations. We believe that this will drive long-term sustainable profit growth for the benefit of all shareholders."

British American Tobacco has a strong track record of successfully integrating acquisitions and remains committed to Reynolds American's US workforce and manufacturing facilities.

The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds. A $25bn acquisition facility has been entered into with a syndicate of banks to provide financing certainty. The acquisition facility comprises $15bn and $5bn bridge loans with 1- and 2-year maturities respectively, each with two six-month extensions available at BAT's option. In addition, the facility includes two $2.5bn term loans with maturities of 3 and 5 years. BAT intends to refinance the bridge loans through capital market debt issuances in due course.

The transaction is subject to shareholder approval from both Reynolds American and BAT shareholders, as well as regulatory approvals and other customary closing conditions. The transaction is expected to close in the third quarter of 2017.

Weil, Gotshal & Manges LLP and Moore & Van Allen PLLC acted as legal counsel, and Goldman, Sachs & Co. acted as financial advisor to the Reynolds American transaction committee.

Jones Day acted as legal counsel and J.P. Morgan Securities LLC and Lazard acted as financial advisors to Reynolds American Inc.

(Source: Reynolds American)