ICON66 – Volume 5
Breakfast
Interview
Brian Parker
– Head of M&A,
ICON
How
did you become
Head of M&A
at ICON?
I’ve
earned my spurs
by having nearly
20 years experience
of the financial
equity markets.
Having qualified
as a chartered
accountant
in the City
in 1984 I’ve
been involved
in capital
markets ever
since. I was
responsible
for acquisitions
at two high
growth Plcs
in the eighties
and was personally
responsible
for over 15
purchases in
the UK, USA
and Europe.
Then as an
analyst and
Head of Equity
Research with
a leading stockbroker
I gained 8
years further
equity market
experience
before joining
Alan Bristow
at ICON in
1999. In the
past few years
I have focused
on trade sales
and worked
with over 20
technology
and service
companies on
their M&A
programmes.
Do
you feel that
the M&A climate
is changing – are
things warming
up?
The last couple
of years have
been tough
in M&A,
and particularly
tough in the
technology
sector, but
activity levels
have definitely
picked up.
A low interest
rate environment,
together with
building confidence
as equity markets
recover, should
be good news
for a sustained
recovery in
M&A markets
in 2004. M&A
activity tends
to lag the
valuations
in the main
stock market
and this is
already filtering
through.
Which sectors
of the technology
markets are
currently most
active?
Until recently
we have seen
the most activity
in the defensive
IT sectors
like public
sector, defence
and healthcare
as well as
restructuring
and opportunistic
bids driven
by low valuations.
However, we
have seen activity
spread to other
technology
areas in the
past few months.
The US market
has been particularly
active in business
intelligence
software, internet
services, some
areas of e-commerce,
content management
and integration
software. Increasingly,
we are seeing
US buyers emerge
out of hibernation
and they are
actively starting
to look in
Europe again.
Where
now for M&A
in the technology
sector?
I think that
if markets
remain firm,
confidence
will build
for a more
sustained recovery
in transactions
across the
technology
spectrum. Technology
spending would
appear to have
bottomed in
many, if not
all areas and
with confidence
building I
would expect
volumes to
pick up again
in 2004.
Deals have
been taking
longer to get
way, is this
your experience
and if so,
why is it the
case?
In the bear
market days
of 2001/02
we saw deals
just about
grind to a
halt as the
downturn hit.
Deals took
much longer,
and in many
cases were
pulled as performance
targets weren’t
met in due
diligence.
However, we
recently closed
the trade sale
of a business
that took 6
months from
meeting to
completion.
Having said
that, we have
also recently
completed a
transaction
that took nearly
three years
from start
to finish.
Some of our
deals take
longer as we
work with management
to groom the
business for
sale and time
our run to
market. Most
of our clients
are not forced
sellers and “timing
your run” is
crucial for
success. Entrepreneurs
who are looking
to sell their
businesses
in 2004/05
should be talking
to us now to
plan the process.
So timing
is critical
if businesses
are to maximise
shareholder
value?
Yes, in an
ideal world
you would sell
a business
just before
the peak of
the stock market,
the sector
and the company
cycles. When
the stock market
values are
high, earnings
are booming
and there are
new players
from out of
town looking
to buy market
share. However,
we don't live
in an ideal
world so some
compromise
is needed.
Selling a business
on the up is
very important
and selling
a business
when the stock
market is falling
is to be avoided
as confidence
can quickly
drain out of
a deal. A lot
of deals ended
up being pulled
in 2001 as
the cycle had
past. Leaving
something on
the table for
the purchaser
is important,
don't be too
greedy or you
can miss the
boat.
Where do
you source
your clients
and what factors
are driving
their exits?
Over two thirds
of our clients
are referred
from our network
of professionals,
venture capitalists,
lawyers and
bankers. The
reasons for
a sale may
vary but all
our clients
are either
owner managed
and their capital
is tied up
in an asset
where there
is no liquid
market, or
they’re
VC backed and
are looking
to cash out.
Planning that
process is
key, few deals
are now done
without some
sort of earn
out or deferred
payment scheme
to retain and
motivate owner
managers. Some
are as short
as 3 months
others are
for 3 years,
but offering
that commitment
to a buyer
reduces his
risk and can
result in a
premium. It
also means
that many businesses
are ready for
sale quicker
than some owners
think. If you
are planning
on selling
your business
and then heading
straight for
the beach,
then it’s
possible, but
frankly you
are unlikely
to get nearly
as much. It’s
better to offer
a handover
period to the
purchaser – even
if it doesn’t
run its full
course.
How do you
differentiate
yourself from
your peers?
I think there
are several
differentiators.
Firstly, at
ICON we only
operate in
the technology
and service
sectors and
by retaining
that focus
through the
highs and lows
of the business
cycle we have
accumulated
in-depth sector
knowledge,
networks and
relationships
and we have
an extensive
M&A database
that identifies
the strategic
buyers who
can justify
paying a premium.
Secondly, all
we do is corporate
finance, we
are not offering
due diligence
services, management
consulting,
tax, legal
or accounting
work, there
is therefore,
no conflict
of interest
and so we can
honestly say
we are focused
solely on maximising
the value of
the deal. Thirdly,
we are owner
managed and
we operate
a “success
orientated” fee
structure,
so we are fully
committed to
the process
and our fee
is contingent
on getting
the deal away.
Finally, we
also offer
a personalised
service, the
Principals
are hands-on,
so we personally
see an assignment
through from
start to finish.
Therefore,
there’s
greater empathy,
continuity
and understanding
with the client,
which is important
when you are
going to be
working with
someone for
6 months or
more.
How active
has the market
been for partial
exits?
A partial exit
is a situation
whereby shareholders
can realise
some of the
value in their
shareholdings
whilst securing
further investment
for the business.
This can be
an excellent
way of providing
the future
capital for
the company
whilst de-risking
the founders/management
teams’ position
through realisation
of some cash.
The appetite for these deals has remained strong with VCs and we expect this to continue. However to be successful in achieving a partial exit the company must have created some real shareholder value and have demonstrated a good track record of cash generation and profit growth. This is not the route for early stage companies. Also VC investors tend to price these types of transactions more aggressively, as a greater risk is attached given that cash is going out of the business, as opposed to all the investment going into the business. These deals however, in the right circumstances, can be an excellent way of accommodating the needs of some shareholders to achieve a partial exit whilst satisfying the requirements of the company for further investment – VCs are very active in this area.
“Entrepreneurs who are looking to sell their businesses within the next two years should be talking to us now to maximise value”
“ICON has an extensive M&A database that identifies the strategic buyers who can pay a premium”
