In the last in our series of blogs, we explore mergers and acquisitions (M&A) as a growth strategy and the key legal considerations. This follows the launch earlier this year of our in-depth report, Ambition 2025, which looks at the key drivers for growth of North West businesses – their strategic objectives for the year, the challenges that lie ahead in their respective sectors and the opportunities that exist in their quest for success. The report dives into a number of core areas that feature prominently in the growth ambitions of regional businesses. These include finance, people, innovation and sustainability.

In our fourth blog, we focus on the key topic of M&A, speaking to Corporate partner, Tom Hall, about its importance and what businesses need to consider from a legal perspective when scaling up. Sustainable growth requires scaling up in a way that protects the values, identity and continuity, which are fundamental to long term success.

The importance of M&A

According to research carried out by Pannone, as part of our Ambition 2025 report, demand for external funding is set to rise as North West businesses strive to meet their growth ambitions and long-term objectives.

An overwhelming 80% of regional businesses surveyed as part of the report are actively seeking funding to facilitate growth, with angel investment and growth capital the most favoured types of investment for North West decision-makers (21% each).

M&A activity is also set to increase, with mergers and acquisitions featuring prominently in businesses’ strategic plans. Over three-quarters of businesses in the North West plan to explore M&A opportunities within the next year. This trend is particularly prevalent in education (93%) and leisure (88%), with tech following closely behind (84%).

The survey clearly shows an appetite for M&A and reinforces the long-held belief that mergers and acquisitions are a highly effective mechanism to drive growth ambitions. Whether the objective is to acquire intellectual property, extend geographical coverage or access new products or service lines, the overarching purpose of an acquisition is to facilitate growth. It’s little wonder that many leading global companies have used acquisitions as part of their growth strategy, underscoring the importance of M&A in driving long-term expansion.

“Depending on the speed at which people want to grow their business, M&A is a very important tool,” explains Tom. “Growth can obviously be achieved in different ways; you can grow organically by hiring people, or by securing new revenue streams via client wins, but if you want to rapidly accelerate your growth plans then acquisitions are the best way to achieve that. With one deal, you can acquire talent, clients, infrastructure, distribution networks and IP, or you can immediately access new markets, geographies or products.”

Like many strategic moves in business, successful acquisitions depend heavily on getting the timing right.

“We don’t see many acquisitions by early-stage businesses,” says Tom. “This is largely down to financial capacity and experience, with few businesses of that size and maturity having the funds or know-how in place to buy another company. It’s more common for a business that, for example, has been through at least one debt or equity funding round, which puts them in a position to start exploring a buy and build project. At this stage, they ordinarily have greater transactional experience, a better sense of the market they are in and usually the backing of experienced investors / stakeholders who have been on similar journeys before.”

Key considerations

The path to a successful transaction is fraught with a number of pitfalls that can derail even the most strategically sound deals. Tom considers some of the key issues to tackle:

• Get your advisory team right – “This is probably the most important aspect of any deal,” says Tom. “A huge amount of value can be won (and lost) by engaging advisors that know what they are doing”. “Sadly, we do see occasions where parties have been let down by advisors that simply do not know their way around a transaction. Any costs that may have been saved by going with a cheaper option are almost always dwarfed by the value that is lost by their advisors being out of their depth and who miss crucial points. “Be sure that your chosen advisors have directly applicable experience and a strong track record of closing similar transactions in your sector. Do not be afraid to ask proposed advisors for a list of credentials and for references from previous clients of theirs,” explains Tom.
• Due diligence – “This is very much based on two principles – ‘buyer beware’ and ‘prevention is better than cure’,”says Tom. “It is infinitely easier (and cheaper) to arrange for the seller to fix a problem prior to completion than it is to try and enforce the legal documents and force them to do it after the deal is done.” An upfront legal audit allows you to assess and analyse any otherwise hidden risks associated with the target company and guides you as to whether there is anything that ought to be addressed pre or post-completion. The same exercise must be carried out for the financial and tax affairs of the target company. Specialised due diligence may be required depending on the sector.
• Resource management and integration – The process of acquiring and integrating another business is time consuming and will absorb a significant amount of resource from your organisation. “Would-be purchasers must remember that they still have to run a business while the acquisition process is going on, so at the outset it’s important to give proper thought to the roles and responsibilities of your team. It is not uncommon to have a division of labour, so that a certain team is assigned to the acquisition project while the remaining members of the team ensure your underlying business continues unaffected,” explains Tom. Careful thought and attention must also be paid at an early stage to post-completion integration, including technology, operating systems and, above all, culture. “You can have all of the perfect financial models in the world but if the people in the organisations just can’t work together effectively then any anticipated synergies of the acquisition will remain theoretical,” says Tom.  
• Project management – there are often many moving parts to a transaction, and trying to bring them all together in harmonious synchronisation on the closing day requires skill, experience and, above all, remorseless planning. “Time kills transactions, meaning that the deal team must meet / speak regularly during the project and continually work through the outstanding steps to completion,” explains Tom. The ability to “see around corners” and spot issues before they emerge is vital to ensure the smooth running of a deal; those businesses that can do this and plan a few steps ahead will usually emerge with a positive result within the proposed timetable.

Support and guidance

M&A offers compelling advantages for growth, including rapid market expansion, access to valuable resources, operational efficiencies, revenue synergies, and enhanced competitive positioning. However, the complexity and risks inherent in these transactions demand careful navigation by experienced professionals. “Advisors that understand both the opportunities and the risks on a deal can mean the difference between a transformative growth opportunity and a costly misstep,” Tom concludes.

If you would like to speak to Tom in more detail about the role M&A plays in your growth strategy, contact him on tom.hall@pannonecorporate.com or call 07920 237695

Arshnoor Amershi has been crowned Corporate Rising Star of the Year at the 2024 Legal 500 Northern Powerhouse Awards.

The Associate Partner at Manchester law firm, Pannone Corporate, was one of 49 winners at the annual event in Leeds, with nearly 400 people shortlisted across 25 categories.

Arshnoor, who recently co-led the corporate team on the sale of the MIDEL and MIVOLT businesses to Shell plc, commented: “I’m still absolutely speechless! To win the Corporate Rising Star of the Year Award is a real privilege and testament to the incredible team at Pannone, our fantastic clients, and everyone who has supported me along my journey.”

The Legal 500 Northern Powerhouse Awards recognise the array of legal talent across the North, North West, North East and Yorkshire & the Humber, celebrating their achievements over the past year. This is the second year the awards have been held, following last year’s inaugural event in Manchester.

Based on The Legal 500’s market-leading independent research for the annual directory, winners are selected by a judging team spearheaded by The Legal 500 UK editor Georgina Stanley, with the support of a 40-strong team of in-house and freelance researchers.

Paul Jonson, senior partner at Pannone, said: “Huge congratulations to Arshnoor! This award is truly deserved and highlights the dedication and passion she has shown, while building an excellent reputation in the corporate finance market across the North.”

Pannone Corporate has advised on the share sale of Detectronic– a specialist in sewer and wastewater network monitoring and management.

The Lancashire-based company was acquired for an undisclosed sum by environmental services business Adler and Allan Limited. This is A&A’s fourth acquisition in the utilities sector, and sixth overall in the last 18 months. The deal will further enhance its capabilities in wastewater telemetry and monitoring.

Pannone’s corporate team advised the shareholders of Detectronic, a long-standing client of the North West law firm. The team included corporate partner, Tom Hall, and Andrew Walsh, senior associate. They were supported by Renee Neophytou and Lizzie O’Leary.

Hall said: “Since we first started working with the team at Detectronic more than a decade ago, the company has built up an unrivalled reputation for its innovative and creative approach to environmental services, with extensive experience in sewer and wastewater management.

“The business has achieved enormous success in recent years and the sale to a company of the ambition of Adler and Allan marks an important chapter in Detectronic’s growth journey. As a long-standing and trusted client, we look forward to seeing how the company flourishes under the expert stewardship of Adler and Allan.”

Detectronic is an environmental and engineering company with a proven track record of helping customers prevent flooding and reduce pollution. It designs and manufactures a range of flow and level monitors for wastewater monitoring including LIDoTT, a market-leading range of sewer level monitoring devices.

Steve Woods, Executive Chairman at Detectronic, said: “We are delighted to be joining the Adler and Allan Group. The services it offers, combined with its established position in the utilities market, allows us to extend our expert monitoring and management solutions to more companies.”

Adler and Allan provides environmental services across utilities, energy, and industrial infrastructure, to reduce risk to the environment, people, and organisations.

Venture Capital is set to underpin the North West deals market in 2023, following a record year of fundraising, as uncertainty and high interest rates in the debt market continue to dampen the volume of leveraged buyouts.

After Venture Capital Trust (VCT) fundraising reached a record high of £1.13 billion in the 2021/22 tax year, VCTs are expected to continue to deploy capital in 2023, which includes investment in small and innovative North West companies. This is aided by the Government’s decision to extend the tax relief scheme beyond its original 2025 sunset clause, which will help maintain the positive momentum achieved over the past few years.

In the final quarter of 2022, a number of standout deals demonstrated the appetite of VCTs to invest in the regional North West market, contrary to what is perceived to be a London-centric investment approach. This included Manchester-based Summize – a contract lifecycle management disruptor – which secured £5 million Series A VCT funding from YFM Equity Partners and Maven Capital. The investment duo also led a £6.5 million Series A round into biomedical data specialist, Biorelate.

According to law firm, Pannone Corporate, which acted on both deals, VCT fundraising could reach new record levels in the tax year 2022/23, particularly given the sector’s ability to offset subscriptions against income tax – an ability to pay tax free dividends, at a time when Government fiscal policy tightens, especially in relation to income tax thresholds.

Mark Winthorpe, corporate partner at Pannone Corporate, said: “As the deals in 2022 demonstrate, venture capital investment is becoming an ever increasing element of the investment landscape, following a record year of fundraising.

“In many cases, VCTs are looking at a longer time horizon of five to seven years and investment rounds are increasingly done on a syndicated basis to increase the level of investment in the round and diversify a VCT’s portfolio. As such, this patient approach is making funds less susceptible to shorter-term economic and political impacts, with deal volumes also potentially benefiting from any softening of valuations.”

In 2022, Pannone acted on 12 VCT-backed deals, a 50% increase on the previous year. Overall, deal volume increased by 24%, with cross-border transactions continuing to feature strongly.

Other publishable high-profile deals in Q4 2022 included, acting for the management team of training and apprenticeships provider Babington on its tertiary buyout, backed by Unigestion; advising digitisation and data storage business, Storetec, on its MBO, backed by Bridges Fund Management; acting for Maven Capital on its investment through the Northern Powerhouse Investment Fund into British tech-for-good company GWD; advising the shareholders of Inprova Procurement on its MBO backed by NVM Private Equity; as well as acting on the cross-border acquisition of Easyairconditioning.com, advising Beijer Ref AB – a Swedish listed business, which specialises in the wholesale of cooling technology and HVAC.

Tim Hamilton, corporate partner at Pannone Corporate, said: “While uncertainty in the UK economy is putting off some overseas buyers, who have choices about where to invest their funds, there are still those who see a weak pound as an opportunity to acquire businesses in a well regulated market and a mature economy at good value. As such, we expect cross-border deals to remain resilient in the next 12 months.

“In terms of sectors to watch in 2023, big data and data security remain attractive areas for investment, as evidenced by the Biorelate and Storetec deals in Q4. Data security is an area that firms will need to maintain investment in over the course of the next 12 months, given the wider geopolitical landscape, whether that’s in Ukraine, or the growing tension between China and the United States over Taiwan.”

PLG International Lawyers firms, Lamy Lexel and Pannone Corporate, have advised on the cross-border acquisition of UK-based eProcurement software company, Market Dojo.

The two firms were legal advisers to global cloud platform Esker, which has acquired a majority stake in Market Dojo. Esker, which is listed on the Euronext Growth market in Paris, has purchased 50.1% of the shares and voting rights in Market Dojo, with an option to acquire the remainder of the shares after a period of four years.

The Pannone team, led by Tom Hall (corporate Partner), Andrew Walsh and Behzad Borang, worked alongside Lamy Lexel, its PLG partner in Lyon, who provided French law support to Esker on the transaction. Frédéric Dupont (corporate Partner), Typhanie Le Gall and Pauline Philippon led the corporate team at Lamy Lexel.

Esker, which is headquartered in Lyon, France, is a global cloud platform and leader in AI-driven process automation solutions for finance and customer service functions.

Tom Hall said: “Esker is a world leader in cloud and AI-driven technology, with a significant footprint across North America, Latin America, Europe and Asia Pacific.

“This strategic acquisition will undoubtedly strengthen Esker’s presence in the UK, while offering significant international development opportunities. It will also build on the company’s capabilities in traditional markets by enabling Esker to bring eSourcing into its platform proposition. It is, as ever, a pleasure to work alongside Lamy Lexel on another successful transaction.

Frédéric Dupont said: ”Lamy Lexel is delighted to be able to support Esker and its teams, for which we handle the day-to-day market regulation aspects, in a strategic international acquisition. It is a renewed pleasure to collaborate with the Pannone team on sensitive operations in a friendly environment.”

Market Dojo’s eSourcing cloud solution was created to address the need for structured and digitised processes in procurement. Designed by procurement professionals, Market Dojo’s unique on-demand solution enables users to centralise information, negotiate the best value for goods and services, and select the right suppliers.

Jean-Michel Bérard, CEO at Esker, said: “We are pleased to welcome Market Dojo to the Esker family. This acquisition provides new growth opportunities in a developing market and strengthens Esker’s positioning in the global Procure-to-Pay (P2P) arena. Additionally, Market Dojo is an excellent illustration of Esker’s strategy to invest in organic growth combined with targeted acquisitions that offer a high potential for growth.”

Mazars provided financial due diligence and tax support to Esker. Advisors to the shareholders of Market Dojo were: Ryecroft Glenton (corporate finance and tax) and Simon Muirhead Burton (legal).