bdo m&a report 2011

Audit Tax Advisory

BDO Mergers & AcquisitiOns survey 2011

BDO Mergers & Acquisitions Survey2

cOntents– Research methodology 3

– Foreword 4

1 Growth expectations 5

2 M&A levels 6

3 Barriers to M&A 10

4 Use of advisers 12

5 Businesses with no plans for M&A activity 13

BDO Mergers & Acquisitions Survey 3

reseArcH MetHODOLOgy

n During the first quarter of 2011, 85 interviews were carried out with senior decision-makers involved in corporate strategy within Ireland's top 1000 companies and Northern Ireland's top 250. All respondents were either FD/CFO, MD/CEO or M&A/development/investment directors.

n Companies were selected across a spread of business sectors, including: distribution (18 per cent), food (10 per cent), technology, media & telecoms (18 per cent), energy (16 per cent), others (38 per cent).

n Companies represented a spread of turnover:

Up to €50 million 27%

€51-€100 million 25%

€101-€250 million 20%

Above €250 million 15%

Would not give turnover information 13%

n Representatives of companies from both the Republic of Ireland and Northern Ireland were interviewed.

n Both BDO clients and non-clients were approached to take part in the research. The survey was managed by BDO with the fieldwork for non-BDO clients conducted by Behaviour & Attitudes.


Despite tHe DOwnturn in tHe ecOnOMy, tHere HAs Been A resurgence Of cOnfiDence tOwArDs Mergers & AcquisitiOns. grOwtH is AgAin On tHe AgenDA, witH sOMe cOMpAnies setting tHeMseLves AMBitiOus tArgets.

fOrewOrD

After more than a decade of high growth and low inflation the economy hit the rocks at the end of 2008. Since then business leaders have been grappling with the recession by cutting costs, reducing leverage and streamlining their operations.

With the current economic conditions making organic growth difficult, companies are now focussed on growing through acquisition. So it’s encouraging to see that 56 per cent of the companies we surveyed are now looking to make an acquisition this year, with 67 per cent over the next 5 years. The majority of these acquisitions are targeting gains in market share or improved product offerings. Whilst many companies are contemplating <€20m acquisitions, 15% have their sights on larger +€20m transformational transactions.

40 per cent of the companies we spoke to anticipate improvements in M&A opportunities over the next 12 months, but there are still some significant challenges. In particular, the expectation gap between buyers and sellers was noted as a barrier for 52 per cent of respondents while 35 per cent find it difficult to identify the opportunities. The expectation for raising bank debt is also a concern for 42 per cent of respondents however 60 per cent of those planning an acquisition intend to finance out of existing reserves.

It is our view that the outlook for M&A over the next 12 months will be driven by companies adapting to the new business landscape, as business leaders and their advisers seek innovative ways of doing deals in order to achieve growth. While funding is likely to remain challenging, the strategic buyers with low leverage will find themselves best placed to achieve their acquisition objectives.

I hope you find this survey useful and welcome your feedback. [If you would like to contribute to future surveys please let us know.]

Katharine Byrne Partner [email protected] + 353 1 470 0515


grOwtH expectAtiOns

1 Sector split Average growth targets

Distribution 11.1%

Food 10.9%

TMT 28.6%

Energy 10.3%

MOst cOMpAnies pLAn grOwtH Over tHe next tHree yeArs AnD MAny HAve AMBitiOus tArgets.

we AskeD What annual turnover growth targets does your business have for the next three years? (Base: 85)

Zero 14%

6-10% 25%

11-25% 20%

26%+ 13%

1-5% 28%

Growth targeted per annum: average 14.46%


M&A LeveLs

2 <€20mAmong acquisitive companies, 67% foresee

just a single transaction in the coming year. Most are looking at a value of less than €20 million.

AcquisitiOns Are pArt Of tHe cOrpOrAte strAtegy fOr ABOut twO in tHree cOMpAnies.

we AskeD Do acquisitions form part of your corporate strategy in the next (a) year? (b) two to five years? If no to both: Would you still consider opportunistic acquisitions? (Base: 85)

71% 12% 6% 12%Over 250 staff

41% 23% 23% 9%Under 250 staff

56% 11% 13% 9%All companies

Next year

In two to five years only

Consider opportunistic acquisitions

Not interested


cOMpAnies surveyeD cOnsiDereD On AverAge five trAnsActiOns AnD cOMpLeteD twO in tHe LAst 24 MOntHs.

we AskeD How many transactions (mergers or acquisitions) has your business completed in the last 24 months? (Base: 57)

we AskeD How many transactions (mergers or acquisitions) did your business consider in the last 24 months (including those completed)? (Base: 57)

Zero 27%

One 31%

Two 13%

Three 15%

Four 2%

Five 5%

6 � 10 4%

>10 4%Completed: Average 2.42

Five

Four

Three

Two

One

Zero 4%

13%

11%

9%

6 � 10 4%

>10 6%Considered: Average 5.44

53%

67%of companies are planning acquisitions

in the next five years.

tHe next 12 MOntHs: A MAjOrity Of cOMpAnies Are pLAnning AcquisitiOns.

we AskeD How many companies will you be looking to acquire in the next 12 months? (Base: 48)

More than three 2%

Three 6%

Two 17%

One 46%

None 3%

Don't know 23%

Depends on circumstances 4%


MOst DeALs LikeLy tO Be unDer €20M, But neArLy One in six LOOking At €20M+.

Acquisitive cOMpAnies Are HOping tO AcHieve furtHer increAseD prODuct Offering, increAseD MArket sHAre AnD geOgrApHicAL integrAtiOn.

we AskeD What size of deal would you consider looking at? (Base: 48)

we AskeD Q1. What has been the principal strategic objective of the transactions your business has considered or completed? (Base: 57) Q2. What will you be looking to achieve through M&A in the next 12 months? (Base: 48)

Main target territories for international expansion (Base: 18 companies)

Continental Europe 89%

UK 83%

Middle East 39%

North America 33%

Eastern Europe and Russia 22%

Asia/Pacific 22%

Africa 22%

South America 17%

India 11%

Other 11%

Don't know 19%

Over €50 million 2%

€20-€50 million 13%

€5-€20 million 29%

Less than €5 million 38%

Increased product/service offering30%

63%

Q1 Q2

Vertical integration

Horizontal integration

Geographical integration into new international markets

4%

31%

4%

31%

23%

38%

Increased market share in existing market34%

58%


MOst Acquirers funDeD AcquisitiOns tHrOugH existing cAsH reserves AnD BAnk fAciLities.

funDing wiLL Be frOM existing cAsH AnD DeBt fAciLities, AnD MAny wiLL seek new funDing.

we AskeD In the past 24 months, how has your business funded its acquisitions? (Base: 57)

we AskeD In the next 12 months, how do you plan to fund acquisitions (if any)? (Base: 48)

56%say they would contemplate troubled

companies, with smaller companies (both in turnover and staff numbers)

being more likely to do this.

Did not complete acquisition

Other

Non-cash acquisition

Equity injection

New bank facilities

Existing bank facilities

Existing cash reserves

19%

2%

9%

13%

15%

23%

51%

Existing reserves 60%

New bank debt 29%

Private equity backing 29%

Additional support from existing shareholders 25%

Existing bank debt facility 25%

Share issues privately 17%

Share issues on capital markets 4%


BArriers tO M&A

3cOMpAnies BeLieve tHere wiLL Be An iMprOveMent in M&A OppOrtunities in tHe next 12 MOntHs, ALtHOugH sOMe finD iDentifying tArgets cHALLenging.

we AskeD Looking at M&A opportunities for your business in the next 12 months, would you forecast there to be an overall (Base: 48):

we AskeD How easy do you find it to identify suitable acquisition targets? (Base: 57)

Don’t know 17%

No change 35%

Deterioration 4%

Improvement 44%

Don’t know 18%

Challenging 40%

Usually achievable 23%

Relatively easy 19%


tHe HigH expectAtiOn gAp Between venDOrs AnD Buyers is tHe MAin BArrier tO cOrpOrAte M&A Activity, But finAncing AnD A reDuceD nuMBer Of OppOrtunities Are ALsO significAnt issues.

we AskeD In the next 12 months, which of the following barriers, if any, do you expect your business to face in its corporate M&A activity? In addition, do you think these will represent either a major, somewhat or no barrier at all. (Base: 48)

Longer M&A process and negotiations

Insufficient management time

Reduced number of opportunities in our market

Reduced ability to raise equity to finance acquisition

Reduced ability to raise bank debt

High expectation gap between vendors and buyers

25%

53%

52%

36%

60% 33%

9%73% 18%

24%

75%

35% 12%

71% 6%

7%

64%

42%

35%

35%

31%

23%

Major barrier Some barrier No barrier/Don’t know

11×more companies envisage an improvement rather than a deterioration in opportunities in the next 12 months.


use Of ADvisers

4twO-tHirDs wiLL LOOk tO ADvisers tO sOurce DeALs. neArLy ALL ADviser users sAy tHAt inDepenDent ADvisers HAve ADDeD vALue tO tHe prOcess.

we AskeD Where will you be looking to source your deals from? (Base: 57)

Other

Advisers

In-house 70%

40%

18%

we AskeD Have you ever used an independent adviser to source a deal or during the course of a transaction – 67% said yes. We then asked those who answered yes: to what extent do you believe (advisers) added value to the process? (Base: 57)

Don't know 1%

Not at all 0%

A little 23%

To some extent 48%

A great deal 28%


Businesses witH nO pLAns fOr M&A Activity

5AttituDe tO OppOrtunistic AcquisitiOn.

reAsOns fOr reticence.

we AskeD As acquisitions do not form part of your growth strategy would you still consider opportunistic acquisitions? (Base: 28)

we AskeD Why are you currently not pursuing any acquisitions? (Base: 28)

Don't know 32%No 29%Yes 39%

We are pursuing an opportunistic acquisition but itsnot part of our fundamental strategy

Our shareholders want us to focus on sales

7%

4%

4%

29%

25%

We have never come across anything suitable

We don’t have the finance/funding

We don’t see the need to/prefer to focus on ourselves


Improve sales/marketingGrowth of the business (non-specific)Improve quality for customersAcquire more fundingImprove revenue management techniquesBe more efficientState of the economyManage our supplier margin expectationsHR function needs to developSize of our workforce (need additional staff)Finding new ways of growingMaintaining costsDon't know/nothing/refused

21%7%7%7%7%7%7%

4%4%4%4%4%

46%

MAin strAtegic gOALs fOr next five yeArs. cHALLenge tO AcHieving gOALs.

key AreAs Of Business tHAt require iMprOveMent in OrDer tO reAcH strAtegic gOALs.

we AskeD What are your principle strategic goals for the next two to five years? (Base: 28) we AskeD What do you see as the key challenges you face in achieving your goals across this period? (Base: 28)

we AskeD What key areas of your business do you feel require improvement in order for you to reach your strategic goals? (Base: 28)

32%Not answered4%Stabilise the company4%Ultimately dispose of business in two to five years4%Combine offices4%Get more staff4%Expand client base4%Reduce exposure in mature markets4%Grow in overseas regions4%Increase turnover

7%Enhance service7%Be more cost effective

14%Maintain profitability18%Develop new business opportunities18%Increase market share

32%Continue to grow/expand

Determining if opportunities are viableRising rentsManaging our assetsManaging our rapid growthMergers in the industryHuge growth in overseas marketsLabour costsAvailability of finance/fundingCurrency fluctuationLack of good/skilled staff availableMaintaining sales/customer baseCurrent economic climateCompetition

4%4%4%4%4%4%

7%11%11%11%

18%21%

29%

Enhancing our credibility

Maintaining profitabilityThreat of terrorism (for travel)

Regulations in the market4%

4%4%

4%


nOtescOrpOrAte finAnce & recOvery teAMBDO have an integrated corporate finance and recovery team which provides a unique multi-discipline approach to protecting and maximising stakeholder value. Our full service offering and ability to draw on our in-house commercial and technical skills ensures a balanced and objective approach to each assignment.

Within our team we have specialists who can help add value through their in-depth knowledge of and direct experience with challenges, opportunities and key players in the following areas:

– Mergers & acquisitions

– Sale of business

– Management buy-outs

– Transaction services

– Fundraising

– Restructuring

– Examinership

– Receivership

– Liquidation

– Litigation/Forensics.

Dealing with us is different. Our approach is pragmatic and hands-on which ensures timely, straightforward advice and our deals are led by senior personnel which delivers high value for clients through experienced negotiation and quick and effective solutions to issues.

For more information please contact: Katharine Byrne, Partner, on 01 470 0515 or [email protected]

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO to discuss these matters in the context of your particular circumstances. BDO, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business.

BDO, a partnership established under Irish Law, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent members firms.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms.

© BDO IRELAND 2011www.bdo.ie

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