Takeovers – How Not to Ruin Your Company!

Not all company takeovers end badly but Nigel Hirst says for them to succeed you need to do due diligence, navigate culture clashes and most importantly of all, spot hidden liabilities

THE GERMANS have many compound words which accurately describe situations. Dunkelflaute (dark-still) has almost reached common parlance in English as away of describing the weather conditions unsuited to solar panels and wind turbines. There is another German word I am very fond of which is less well-known, however. Verschlimmbesserung can be translated as “the act of making things worse when trying to improve them” – and it frequently applies to takeovers.

There are many well-reported failures of company takeovers, the most recent and notorious of which is probably that of the software company Autonomy being acquired by Hewlett Packard. The resulting litigation over the true value of the company was intense.

There are well documented rules for disclosure of information by the seller, and the buyer has the right to carry out an inspection of the books. Most issues arise when these are not fully implemented, as was the case in the disastrous takeover of ABN Amro by a consortium led by Royal Bank of Scotland (RBS). The lack of due diligence from RBS – the directors apparently relied on two lever-arch folders and a CD – saw them fail to fully appreciate the extent to which ABN Amro were involved in the US sub-prime mortgage market. The subsequent collapse of the US housing bubble and global financial crisis left RBS needing £45bn of British taxpayers’ money to bail it out.

I have been involved in the sale and acquisition of several companies in my career, most of which, due to a strong nose for bulls**t and a refusal to be rushed, have gone to plan and here are some of the things I have learned.

The companies being sold are usually being sold for one of one of the following reasons:

• Owner wishes to retire, to “cash-in”, or has lost interest in the business
• The company hasn’t got enough money to continue
• The company has lost a major contract or customer and will run out of money in the foreseeable future
• The company cannot recruit or retain staff due to market competition