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23

Mergers and acquisitions to take longer in 2002

Following a challenging market for mergers and acquisitions at mid-corporate level in 2001, the environment in 2002 is likely to be active, but still rather difficult, with M&A negotiating periods considerably extended, as buyers become a lot more demanding, according to David Brooks, Head of Lead Advisory, Grant Thornton Corporate Finance.

Following a challenging market for mergers and acquisitions at mid-corporate level in 2001, the environment in 2002 is likely to be active, but still rather difficult, with M&A negotiating periods considerably extended, as buyers become a lot more demanding, according to David Brooks, Head of Lead Advisory, Grant Thornton Corporate Finance.
"With the benign tax regime that businesses have enjoyed in the last few years still in place, during 2002 the market will undoubtedly see mergers and acquisitions develop, as companies will need to maintain their competitive edge, particularly in the mid-corporate sector. Many will also need to grow in terms of their international capabilities. In addition, unlike at the time of the last recession, both banks and venture capitalists are now awash with funds to back companies which have a sound business proposition." said David Brooks.
"However, with the economy posing greater risks than before, buyers are also likely to avoid any risks, being much more cautious and demanding, as are banks and venture capitalists, who will only release funds where a good buying opportunity is readily identifiable."
He added, "Businesses will seek to complete only acquisitions that are strictly necessary to the growth and strategic gain of their business, being less likely to venture into new areas, which inevitably require a more long term commitment. The situation is very different from the late 1990's when demand exceeded supply and a feel of urgency - in order not to miss out on the best deals - permeated the market," continued Brooks.
"In essence, the criteria for mergers and acquisitions today is a lot more stringent. This is inevitably leading to a scenario that requires more time to finalise deals, as investors take longer to make their minds up, research their targets in more depth, and bargain a lot longer and a lot more fiercely on the price," concluded David Brooks.
For sellers, Brooks advises:
Know your buyer. From the outset, make sure that your buyer has the cash and business strategy in place so that a deal can be progressed quickly and satisfactorily to all parties involved.
Define your price. Be clear about your price from the outset and be realistic. Accept that you may have to negotiate and have a fall-back price in mind.
Keep your house in order. Recognise that your accounts will be scrutinised and make sure that your order book is strong and robust.
For buyers, the following advice applies:
Negotiate hard. You are in a strong position in today's market, presenting an ideal buying environment.
Due diligence is key. You may be under significant pressure to complete on a deal but you cannot afford to skim the detail.
Be selective. You are in a strong position and can choose your targets. Save yourself time and money by making sure that your vendor is genuinely interested in a sale from the outset.

Author: Neftegaz.RU

Source : Grant Thornton Corporate Finance