ICON66 – Volume 7
Diary Of A Deal
Name: James Thomas, Investment Director
Company: ICON Corporate Finance
Email: james@iconcorpfin.co.uk
URL: www.iconcorpfin.co.uk
ICONs: Gareth Edwards, Noel Chavasse
James Thomas liked the Insurance 4 Car Hire model so much that he bought one of its policies. Here’s the account of the sale of I4CH to Towergate..
Month 1
Meeting CEO Larry Ursich and his Chairman, I was immediately struck by the beauty and simplicity of the I4CH operation. Had Larry created a near perfect online business? Like the old Remington advert, I liked it so much that I came away from the meeting and immediately purchased an I4CH policy for a forthcoming weekend ski trip. The key attractions for potential acquirers were:
~ turnover growing year on year
~ highly profitable
~ well organised automated processes
~ large market opportunity
~ lean cost base
~ 24/7 global operation
The initial stage of the sale process is where a lot of the heavy lifting takes place. Time is spent in conjunction with management in preparing the key marketing materials – an Information Memorandum, the one page no-names summary and the company presentation.
Finding the strategic purchaser is key to getting the best price. After a good deal of discussion, we agree the target list – it is highly focused and smaller than you might think.
Month 2
The marketing process is in full swing and as a result we spend time in meetings with
potential acquirers. Interest is high and we’re dealing with a number of follow up enquiries.
The second month ends with us receiving a number of offers from FTSE 100 companies as well as international financial institutions and the odd private equity backed purchaser.
Before granting exclusivity on any transaction, it’s important to look beyond the headline price and to understand where the weaknesses of the offer lie. What assumptions have they made in arriving at the price, how will the deal be financed, what are the acquirer’s approval processes and what further due diligence (DD) requirements do they have? Further investigation allows us to discuss the positives and negatives of each of the bids with Larry.
From the offers received, we agree a short list whose bids we will explore in more detail. At this point we offer further DD materials to enable the leading bidders to submit detailed
'best and final offers' by an agreed deadline. A lot of arm twisting and negotiation from ICON sees significantly improved terms by the time that final bids are tabled.
We’re now ready to engage lawyers and I introduce Larry to a couple of specialist law firms who we know are commercial and well versed in these transactions.
Month 3
A decision on a preferred bidder (Towergate) has been made. A great result but the champagne is on hold for a little while longer. A great deal of work still lies ahead. Formal DD is underway in earnest and the balance of power shifts in favour of the acquirer. You cannot afford to take your eyes of the ball and Larry is a great example of someone who keeps on delivering the day to day business.
Initial responsibility for drafting responses to DD enquiries was given to a senior employee, which allowed Larry as much time as possible to devote to the business. Results stand up well and actually exceed forecast.
Month 4
Legal documents have been drafted and circulated. Given the time taken at the outset to establish detailed Heads of Terms, there are no surprises.
Towergate is a highly acquisitive company with well-established and dedicated internal DD and legal teams at their disposal so the process moves forward quickly.
Aspects of the DD, and usually the financial and legal DD, will be contracted out by the acquirer to third parties. It’s important to project manage this process properly in order to ensure that the timetable doesn’t slip and any issues are dealt with as they occur.
The deal completes smoothly and we have achieved a fantastic deal for I4CH. Towergate have ambitious plans for the company and after a pause for a glass or two of something cold and bubbly the post-deal integration starts in earnest.
