BHP Corporate Finance recently had the privilege of advising on the acquisition of iconic UK mountain bike manufacturer, Orange Bikes (you can read more about the deal in our post ‘On Yer Bike‘).
Our team includes a number of keen riders so it was particularly satisfying to advise on a transaction involving such a well-regarded industry name. Reflecting on the deal afterwards it became obvious that there were a number of parallels between a good trail rider and a successful acquisition.
Mountain bikers know that anticipation is one of the keys to getting quickly and safely from the top to the bottom of the trail. Look up at what’s coming ahead, not down at the front wheel. The same applies to an acquisition.
Planning ahead will greatly improve the chances of successful execution. Just as an experienced rider will be able to spot a particularly tricky line and adapt speed and position in advance, a good corporate finance advisor will flag potential issues and counsel the client on how best to deal with them.
Customer concentration, reliance on departing management, IP ownership, under-invested plant and machinery and regulatory compliance are all potential transaction issues but if they are properly considered and the acquisition structure is tailored accordingly, they need not be deal breakers.
Any rider understands that flexibility is a fundamental part of surviving a challenging downhill blast. Landing a jump with stiff arms and legs is a one way ticket to A&E.
Notwithstanding the importance of anticipation and planning, it is likely that most acquisition processes will experience unexpected “lumps and bumps” along the way. Whilst there will inevitably be some red lines which cannot be crossed, being able to adapt approach and tactics to changes in circumstances will increase the likelihood of securing the right deal.
The importance of flexibility is heightened when dealing with overseas vendors, when cultural differences can often be misunderstood and relatively trivial issues can therefore become exaggerated.
Taking measured risks
Professional riders with the right bike can throw themselves down a mountain side and take what ordinary mortals might view as extreme risks (for those interested in seeing a short clip of such things it’s worth clicking here http://bit.ly/1O5r72q). The reality is however that years of experience and proper preparation mean that whilst risk is never eliminated, it is largely within the rider’s control.
All transactions carry an element of risk and some are inherently more risky than others. New markets in new geographies are at the more extreme end but even the acquisition of a well-established competitor in the home market carries some degree of risk.
Buyers should always ask themselves whether they have the appropriate capabilities and resources to cope with acquiring and integrating the target business. In the heat of a competitive sale process it can be difficult to recognise when the balance of risk and reward gets out of kilter. An experienced corporate finance advisor will help clients recognise when it’s time to put the brakes on and resist the temptation to jump the gaping void.
By Don Gray
Partner, BHP Corporate Finance