Assembling the advisory team

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Part 1 – Planning a business acquisition

In the context of the Acquisition of a business an advisory team (Advisory Team) can take many forms. The reality is that not all attempted acquisitions are successful, therefore to maximise the probability of making a successful acquisition there are many factors to be considered in assembling the advisory team ranging from do you need one at all to what are the teams roles and responsibilities.

What is an Advisory Team?

An Advisory Team is:

“a multidisciplinary group of people with different skills who work together for the benefit of an Acquirer to ensure that the Acquisition of a Target or Targets completes successfully”.

In the case of lower value acquisitions the Advisory Team may be a Business Broker or an Accountant of simply the proprietor of the business.   Conversely in the case of an ASX Listed entity, the Advisory Team may be made up of a multidisciplinary team who advises the Acquirer over many months.

The Advisory Team for a business acquisition will depend on a number of factors relating to the nature of the business to be acquired (Target) and the characteristics of the Acquirer.

Put simply, the advisors required for the Acquisition of a “fish and chip shop” will vary markedly from those required for the Acquisition of a publically listed entity by another publicly listed entity that has a large pre-existing percentage of its market.

What sorts of advisors can be part of the Advisory Team?

Advisory Teams can be made up of some or all of the following types of occupations (Advisors):

• Accountant:
  • Auditor; and
  • Financial.
• Corporate Advisors:
  • Business Broker;
  • Project Manager; and
  • Strategic Advisors.
• Company Secretary:
  • Internal; or
  • External.
• Expert Advisors:
  • Information technology consultants;
  • Industry experts;
  • Insurance brokers;
  • Scientists; and
  • Patent Attorneys.
• Financiers:
  • Banks;
  • Mezzanine Financiers; and
  • Private Equity.
• Lawyers:
  • Corporate;
  • Intellectual property;
  • Merger & Acquisition; and
  • Tax.
• Management Representatives:
  • Directors (including the Managing Director)
  • CFO;
  • In-House Counsel; and
  • Officers.

An exact taxonomy is somewhat difficult because the particular Advisor may be known as different things to different people. For example, a Corporate Advisor at the higher end (the likes of Macquarie Bank) may also be a Financier who assists with the capital raising for the Acquisition or may in fact have its own funds to invest. In a similar fashion the Company Secretary may also be the in house Counsel and a Lawyer, and a Management Representative. Therefore any attempt at a taxonomy is necessarily imprecise.

Categories of Advisors

Accepting the above taxonomy (albeit with its weaknesses), we can see that the following occupations may comprise an advisory team (Advisory Team):

• Accountants;
• Corporate Advisors;
• Company Secretary;
• Expert Advisers;
• Financiers;
• Lawyers; and
• Management Representatives.

Factors to consider in determining the composition of the Advisory Team will depend on the Nature of the Target and the characteristics of the Acquirer.

Nature of the Target

Assuming that the Target is known to the Acquirer, the factors to be considered can be analysed in the context of Dundas Lawyers Enterprise Due Diligence Framework as follows:

• Structure and ownership
  • Is the Target listed on the Australian stock exchange? If yes, then in Australia the ASX Listing Rules[1] will need to be considered;
  • What is the business structure of the Target?
  • The organisational structure of the Target will need to be considered – for example the Target can range from a sole trader to a stapled entity listed on the ASX.
• Material contracts
  • What likely contracts will the Target have which may need to be considered by the Advisory Team?
  • Are there likely to be any significant Material contracts which are a reason for making the Acquisition?
• Assets
  • What assets is the Target likely to have?
  • Are these assets likely to be readily transferrable or subject to any sort of unique encumbrance?
  • How can the Acquirer ensure that the assets are protected and title transferred at completion?
• Regulatory regime and compliance
  • What are the characteristics of the industry that the Target operates?
  • Will the nature of the Target mean that Expert Advisors need to be engaged?
  • Does the particular characteristics of the industry of the target mean that certain statutory licences are essential?

The answers to these questions will provide guidance as to the composition of the Advisory Team and the skills that they are required to contribute to successfully complete.

What is the main barrier to be overcome by the Advisory Team?

In addition to the above considerations, in business acquisitions, there is generally an obvious or main barrier (Main Barrier) which has to be overcome by the Advisory Team. In many cases the Main Barrier is obvious, in others it will be uncovered during the due diligence process, or alternatively there may be several Main Barriers.   For example if a condition precedent to the Acquisition is a capital raising, then this may be considered to be the Main Barrier to be overcome by the Advisory Team. If the acquisition of the Target will mean that the Acquirer would result in a substantial lessening of competition[2], then the Main Barrier may be obtaining approval of the ACCC. Alternatively the Target may be developing some technology which requires an Expert Advisors opinion of its likelihood of success.

Characteristics of the Acquirer

The characteristics of the Acquirer also needs to be considered in a similar way that the Target is analysed. The following factors are provided as a guide:

• the capability of Management Representatives and their availability to work in the acquisition team;
• the Acquirer’s experience in making acquisitions;
• whether the Directors of the Acquirer require a due diligence defence^[3] because they are raising capital as part of making the Acquisition;
• likely cost of the Target and how the acquisition is to be financed;
• the budget for the Advisory Team;
• whether there are likely to be any conditions precedent to the making of the acquisition such as;
  • Capital raising; and
  • Regulatory approvals.
• strategic reasons for the acquisition;
• relative size of the Target when compared to the Acquirer;
• whether the Acquirer is an offshore company making the acquisition subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA); and
• whether the Acquisition of the Target would result in a substantial lessening of competition and subject the Acquisition to s50 of the Competition and Consumer Act 2010 (Cth).

These factors could be more simply put as the size and scale of Acquisition and its relative importance to the Acquirer.

Applying the framework to determine the composition of the Advisory Team

Now that a framework for analysis has been considered it is somewhat easier to determine the composition of the Advisory Team. The following examples are illustrative:

• Acquisition of smaller Target by ASX Listed Entity

By simple reasoning, an Acquisition by an ASX Listed Company of a much smaller unlisted entity that is in the same industry where the consideration is likely to be cash and the Acquirer has a history of successful acquisitions is unlikely to need Corporate Advisors or Financiers. In this case depending on the capability of Management Representatives, the Advisory Team may not need to be augmented at all. Given that both the Targets and the Unfunded Acquisition are of equal sized Target by inexperienced Acquirer.

Consider the situation where inexperienced Management Representatives of the Acquirer would like to acquire a Target of equal size in a scientific or technical field.  It would be possible to have a need for all of the following Advisors on the Advisory Team:

• Accountant;
• Corporate Advisor;
• Project Manager;
• Strategic Advisor.
• Company Secretary;
• Expert Advisors (Depending on the industry involved);
• Financiers;
• Lawyers (various specialities); and
• Management Representatives (various).

In this situation, it’s likely that a larger Advisory Team lead by a Lead Consultant with significant project management skills will need to be engaged in order for the Acquisition to have the most likelihood of success.

Further information

If you need advice on assembling an advisory team, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstance.

[1] ASX Listing Rules available at http://www.asx.com.au/regulation/rules/asx-listing-rules.html.

[2] Section 50 of the Competition and Consumer Act 2010 (Cth).

[3]Section 731 Corporations Act 2001 (Cth) provides a due diligence defence for misleading and deceptive statements made in prospectus where reasonable inquiries have been made and any omissions were made after making reasonable inquiries. Section 180(2) Corporations Act 2001 (Cth) provides for what’s known as the Business Judgement rule.

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