Executing Merger and Acquisition Transactions

Generating revenue growth for companies is often more challenging to accomplish than a cost cutting exercise through a restructuring process. To achieve more rapid growth, senior management often opt for acquisitions if they perceive this will meet their growth objectives. Over the past 3 years there has been an M&A boom fuelled by low cost debt and accommodating equity markets which has extended from the public to the private sector.
Many companies have been able to acquire successfully, to integrate diverse businesses and to generate value for all their stakeholders. However, shareholders of both private and public companies are becoming more vociferous if their expectations are not met. Private equity firms have the ability to finance the acquisition of even the largest businesses. Therefore, management teams must have a realistic plan to achieve the acquisition benefits.

We will review the key aspects required for successful transactions. Senior management needs to take a holistic approach to the entire acquisition selection, financing and integration process.

Implementing a successful acquisition strategy

A clear strategic rationale is the first step to ensure a successful acquisition. The chances are significantly enhanced when the following are taken into consideration:

  • Business synergies, where an acquiring company’s core competences are accentuated;
  • Increased revenues, particularly through access to additional markets for existing and new products;
  • Consolidating the business sector with a focus on the potential for cost savings;
  • Enhanced barriers to entry against new entrants; and
  • Effective leadership, especially with a new CEO running the business and needing to motivate the management to deliver the new strategy.

There have been countless examples of destruction of shareholder value by companies through diversification into unrelated business areas. An example relates to Hewlett Packard and their many difficulties with post acquisition integration from Compaq to autonomy.  The company required several changes of leadership over the past 15 years.

The initial approach

Once an acquisition strategy has been agreed by the company, a small team should be assembled including specialist business development, financial and operational personnel. Financial advisers should be appointed as early as possible to work with the team in researching and approaching potential targets, or merger partners, with the initial intention of selecting a short list of one to three candidates for more advanced discussion and negotiation. It is vital at that stage to separate the operating management of the existing business from the M&A team in order to ensure the continuing focus on the existing business.

The due diligence process

Once interest has been ascertained in the business and ideally a period of exclusivity has been agreed, the due diligence process can commence. If a price needs to be disclosed at this stage then this should be as flexible as possible. Due diligence is the most time consuming and least creative part of the M&A process, but can have a direct influence on the final price achieved. It is also crucial to incorporate due diligence into the integration planning and to keep the same team involved throughout the transaction.
Due diligence can be separated into a number of areas depending on the complexity of the business. The main areas of focus are: accounting, legal, commercial, systems and human resources including the impact of pensions. The review will also provide the opportunity to evaluate the quality of the operating managers in the business.
A significant amount of time must be spent on commercial due diligence. Discussions with key customers and suppliers, joint venture partners and competitors provide invaluable information on the prospects for the business.

Pricing and final negotiations

There are several valuation methods assist the negotiation process. These include discounted cash flow, earnings and operating profit multiples as well as analysing comparable transactions.
The intrinsic value of the business is the net present value of expected future cash flows independent of any acquisition. This is the stand alone value and the basis for negotiations. Any price paid above the intrinsic value represents a premium to be shared between the target company and the acquirer’s shareholders. This premium includes a market premium and the potential synergy value. These synergies comprise of revenue enhancements, cost savings including financial engineering and tax benefits as well as process improvements.
However detailed the financial analysis has been, the final price will depend on a negotiation between the buyer and the seller. It is essential to have a disciplined approach to the valuation of the business and for the buyer or for the seller to be able to walk away from a transaction at the appropriate time.

Financing alternatives

With the large variety of new financial instruments developed, there are a variety of financing methods available:

  1. All cash deal. This is often the preferential route for selling shareholders. The purchaser can use internal resources or can raise funds from the banking, insurance or hedge fund sectors. A mixture of senior and subordinated debt can be raised. Alternatively, the bond or equity markets can be employed. Lenders are often willing to provide substantial sums, up to 5-7 times EBITDA for strongly cash generative businesses with assets to provide as collateral.
  2. Share transaction. Companies can use existing or new shares and use these as payment to the selling shareholders. If the prospects of the combined business are strong and there is potential liquidity in the shares, then this could be an attractive option for the selling shareholders.
  3. Hybrid options. A combination of cash, increased debt and shares could be used. For a larger transaction, bonds convertible into equity can be also considered.

Achieving closure

Once terms have been agreed, the financing arranged and the final agreement signed, there is typically a one to three month period before all the documentation is completed and the approvals received. A surprising number of deals fall apart at this stage and whilst there may be legitimate reasons such as a material adverse change in the business, it is also vital for the acquirers to sell the deal to the company’s stakeholders and to maintain the momentum to ensure there is rapid closure.

Post acquisition integration

Effective acquirers, such as GE, have perfected their ability to integrate companies rapidly into their organisation. The key elements in a successful integration are as follows:

  • Begin the integration process before the deal is signed with a combined due diligence and business integration team;
  • Dedicate a full time individual with decision making powers to manage the entire process;
  • Ensure constant communication to minimise the loss of morale. Reaching to the second tier of management as fast as possible and clarifying their positions reduces the possibility of significant defections;
  • Focus on a rapid integration process. There needs to be clear decision making authority from day one. A 100 day plan is required and tough decisions, particularly on personnel issues, have to be taken at the outset. Paralysis in decision making must be avoided.
  • Integrate not only the business operations but also the corporate culture. This is particularly important in cross border mergers.
    Poor integration planning and execution is one of the major reasons for value destruction in mergers and acquisitions.


Successfully acquiring and integrating businesses only occurs through a disciplined process and experience. A clear strategic rationale is required at the outset with identifiable synergies in combining the businesses.

A combined acquisition and integration team is required, which is supplemented by the necessary multi disciplined advisory team. Thorough due diligence must be undertaken which is critical both to the final negotiations and to the integration process.

Reviewing the alternative financing options at the outset can provide attractive alternatives.

Finally, it is important to note that in the excitement of the deal more value can often be generated for shareholders by walking away from a transaction than by pursuing a merger or acquisition of limited strategic benefit.
The views expressed in this newsletter are those of DC Dwek Corporate Finance Limited and are provided for information purposes only.

Improving Boardroom effectiveness – An Update

Much has been written recently on the subject of boardroom effectiveness and diversity around the world. We provide a summary of the key points and examine creative ways to improve the effectiveness of company boards.

Improving effectiveness

Regulators across the world have been conducting reviews and passing additional legislation over the past few years to reduce the potential for accounting manipulation and fraudulent behaviour by financial institutions and companies. Whilst certain penalties will reduce unacceptable behaviour, the nature of business is in taking calculated risks. Therefore it is essential that good practice takes precedence over a culture of over-regulation and mere box-ticking. Companies will often find ingenious methods to circumvent rigid rules to their advantage.
Good practice therefore implies a set of prescribed principles to which companies adhere. The quality and intensity of debate at board meetings must be enhanced and this is where a diverse set of independent directors must be more prominent. They should not rely exclusively on the information provided by the company and its advisors, but must look to independent advice to enhance the quality of questioning of the executive team, particularly during a major strategic or financing event.
We no longer require a board full of “Yes men”, but a board of individuals that will take a unified decision following intense discussion and debate. Saying “No” when appropriate will be healthy and may also lead to improved decision making.

What makes a non-executive director effective?

There are three key functions of a non-executive director. Firstly, to provide guidance and strategic input to the management team using their experience and network, secondly to ensure that there are the systems in place to monitor the performance of the team and thirdly to strengthen the executive team in a timely manner.
In order to add value to the companies with which they are associated, non-executive directors must above all uphold the highest ethical standards of integrity and promote the best standards of corporate governance. They must support the executive directors in the execution of the agreed strategy of the business whilst monitoring their performance and remuneration on behalf of the outside shareholders. This is a critical role and a fine balance is required in order to maintain an open relationship between executive and non-executive directors.
Non-executive directors are typically appointed for their commercial experience in a given sector. Their main role must be to question intelligently and therefore to add substance to the boardroom debate. However, whilst being sensitive to the views of the other board members, they must challenge rigorously.
Finally, the non-executive director must gain the trust of fellow board members in order to be viewed as a key team player.

UK Corporate Governance

Since 1992 when the UK Corporate governance Code was introduced there have been several key developments to the Code.  The report by the Higgs Committee in the UK on the effectiveness of non-executive directors was published was a key development in 2003-2006. Since then there have been important updates to the Code.

In order to avoid a rigid one-fits all system, Higgs proposed a “comply or explain” approach to governance. For such a system to be widely accepted in the business community, there has to be general compliance with the principles of the Corporate Governance Code and limited deviations. In particular, smaller companies with more limited resources have voiced concerns on the potential rigidity of the new proposals such as the limits on the years a non-executive director can serve one company. A box-ticking approach to corporate governance needs to be avoided, or else methods will be devised to circumvent the rules and regulations.

The appointment of a senior non-executive director with access to institutional investors has been accepted and in most cases has provided assistance to the chairman and the CEO of the Company, particularly when the Board is going through periods of stress.  Providing shareholders with an additional channel of communication, especially when there are contentious issues, has been a healthy development.

The non-executive or independent directors typically constitute the majority of directors. The main issue relates to the cost and time involved in appointing the appropriate non-executives, particularly for the smaller companies. Clearly increasing the pool of quality non-executive directors with the necessary experience and training for their role is key and this should be supplemented by independent advice, particularly at times of major strategic change.

A key factor in the UK has been the separation of Chairman and Chief Executive of a Company. This has been successful in the majority of cases to create checks and balances for the Board. This is often a key difference between UK and US public companies. Diversity in the composition of a Board is a key factor in improving boardroom effectiveness by providing a variety of views and ensuring that “Group Think” is avoided. Increasing the number of women on boards has clearly added diversity as well as value.


Clearly the vast majority of companies are well managed and comply with the high standards required of the governing bodies and regulations across both sides of the Atlantic. Financial crises will continue to occur throughout the life cycle of a Company but an effective board can provide the structure to challenge the management before certain strategic decisions are taken.

A diverse group of Non-executive directors need to continue to play an influential role. They need to enhance the level of discussion and debate in the boardroom and on the board committees to pose the appropriate questions. They need to be supported by the company, but also by appropriate training and independent advice. Once this more rigorous debate has been completed, then a unified board can follow the agreed strategy. We no longer need “Yes men”, but non-executives that will be willing in certain circumstances to say “No”.

The views expressed in this newsletter are those of DC Dwek Corporate Finance Limited and are provided for information purposes only.

Successful sale of assets

Together with a major family office, we set up a water business called Silnir Cyprus Limited, a subsidiary of Subsea Infrastructure Limited and won a competitive tender awarded by the Government of Cyprus to supply drinking water and the associated infrastructure. We formed a broad consortium of local  and international partners , financed the project with debt and equity from the UK, managed the installation execution and completion of the transaction successfully over an 8 year period. Over 20 million cubic metres of drinking water were successfully delivered to the people of Cyprus  A significant number of assets were sold in 2016 following a sale process to Middle Eastern and Australian buyers.

The Company continues to develop water

DC Dwek Corporate Finance Limited is an advisor and board member of Subsea Infrastructure Limited and of Silnir Cyprus

Tender won and successfully executed the Government of Cyprus

DC Dwek Corporate Finance formed a consortium for Subsea Infrastructure that won a tender with the Government of Cyprus for a mobile water desalination project. We also arranged the financing for Subsea Infrastructure. A local company Silnir Cyprus was incorporated. David Dwek is a Director of both companies.

Subsea Infrastructure is a private UK company involved in the water and renewable energy sector. The company has used this expertise to develop a rapidly deployable large scale mobile desalination solution. This has been successfully deployed in Cyprus. There are opportunities to provide water solutions particularly using renewable energy and a variety of water delivery solutions in many areas of the world where water is an increasingly finite resource.

Subsea Infrastructure formed a consortium with a desalination equipment manufacturer and a Cypriot local partner to tender for 20,000 cubic meter per day (20 million litres per day) mobile desalination plant in Limassol. The total capital expenditure requirement is in the order of €20m. This was financed from the UK in a combination of debt and equity. The tender procedure followed EU procurement rules and was very detailed. Bank guarantees and strict expertise from the main contractor and the subcontractors were required.

Following the award of the contract, the equipment was installed during a 9 month period which represents the fastest execution of a large scale desalination plant to date. The plant delivered over 20 million cubic metres of high quality drinking water water over a three year period after which the plant was maintained, dismantled, refurbished and relocated to the Middle East and to Australia.

All the requirements of the Cyprus Government were fulfilled and debt obligations were repaid in full.

The company is continuing to develop flexible modular desalination solutions using renewable energy sources. a variety of water distribution methods are being considered including bottling.

Successfully de-listed

Gilat Satcom, an international telecom operator was successfully de-listed in July 2008 following its flotation on AIM in 2005. The company was turned around with a new CEO and controlling shareholder. David Dwek was a non-executive Director of Gilat Satcom during its public listing in London. For background information.

Gilat Satcom is a broadband and voice satellite service provider focusing on the emerging markets. The company was listed on AIM in 2005.

Following a change of major shareholder and CEO, a strong recovery took place in the business. However, the volume of shares traded on the AIM market was very low as well as the company valuation and a decision was taken by the Board to take the company private. This was successfully completed in July 2008. David Dwek was a non executive director of Gilat Satcom whilst the Company was listed on AIM and contributed to focus the management team and the shareholders on the key strategic and financial issues for the development of the business

Disposal of two media businesses for Sky

DC Dwek Corporate Finance has completed the disposal of two media businesses for Sky to the full satisfaction of the shareholder, management team and the financial purchaser. For further details


Headland Media is involved in the in-store media business including bespoke music and screen services as well as the provision of news and DVD services to the cruise, merchant ship and hotel markets,. British Sky Broadcasting (Sky) purchased these two separate businesses as part of its acquisition of 365 Media Group (“365”) in early 2007.

Whilst the two businesses had been profitable for many years, they did not form part of Sky’s future strategy. DC Dwek Corporate Finance commenced the sale process by engaging the management team and ensuring that their objectives were aligned with those of the selling shareholder. We offered the two companies either as a combined entity or alternatively as two separate businesses. In particular, the management team was excited to develop the two businesses as a combined entity due to the significant marketing and operational synergies available.

The preliminary information was analysed and a valuation range agreed based on the prospective cash flows of the business and multiple analysis of comparable companies in the sector. Once all parties agreed on the information memorandum, we approached around 50 potential purchasers. These included both trade purchasers for either the in-store media and/or the news businesses. We also approached the private equity community in the UK and Europe due to the cash generating potential and the opportunity of leveraging the balance sheets.

After the review of the preliminary information provided, interested parties were requested to provide a non binding indicative offer for the businesses. This allowed us to gauge the level of interest and to invite these parties to presentations with the management team.

We narrowed the group down to six parties and a more detailed management presentation was prepared with further financial breakdowns. This enabled the potential purchasers to discuss their objectives with the management team and to assess the fit into alternate business models.

Further information was provided and the interested bidders submitted revised offers. Once the revised bids were received, it was apparent that both trade and private equity interest remained.

Our objective was to complete the process as rapidly as possible, but to retain competitive tension. Three parties were left with significant interest and further discussions with management took place, analysing more detailed monthly and quarterly financial data. A final round of indicative bids was received and one bidder was eliminated.

A draft version of the Sale and Purchase Agreement (SPA) was dispatched and negotiations commenced. One party was selected, an exclusive period agreed and detailed negotiations commenced. Time pressure was maintained to ensure that the transaction finished rapidly. Although final negotiations were tense, a deal was finally agreed that satisfied the management team, the selling shareholder and the purchaser, the private equity firm controlled by Peter Dubens.

In conclusion, the transaction was successful due to strong teamwork between the selling shareholder, the management team and the advisor to peacefully resolve issues as rapidly and positively as possible. Negotiations were often tense with the advisor ensuring that momentum was maintained until the deal was finalised.

Sky commented: “Your sound advice and transaction management skills enabled us to achieve a great result for both Sky and the management team.”

Headland Media summarised the process as follows : “David represented all the stakeholders with great skill, persistence and enthusiasm. His tenacity and negotiating skills were paramount in concluding a deal for the management team in the face of a collapsing credit market.”