Spring iDeal 2009

SEEING OPPORTUNITIES ANDAVOIDING RISKS

SEEING OPPORTUNITIES ANDAVOIDING RISKS

M&A NEWS FROM BCMS CORPORATE SPRING 2009M&A NEWS FROM BCMS CORPORATE SPRING 2009

INSIDE: FREE SERVICES CASE STUDIES M&A DOCUMENTS WARNING CLIENT INTERVIEW PROACTIVE MARKETINGPERSONAL FINANCIAL PLANNING M&A TERMINOLOGY INTERNATIONAL NEWS PHILANTHROPY DEAL COMPLETIONS

i D E A LA c h i e v i n g y o u r i d e a l e x i t

www.bcmscorporate.com

David Rebbettes

A refreshingly different approach to sellingyour business for its maximum value

2008 EDITION £49.99

Free bookIf you would like to read moreabout our refreshingly differentapproach to selling businessesfor their maximum value pleasedownload* a free version of ourbook entitled ‘Selling yourbusiness for its maximum value’.The book details the sale processall clients’ businesses are takenthrough, from preparation to acompleted sale. Throughout thebook, case studies cover actualexamples of the mistakes madeby business owners in the saleprocess. This book providesessential information for ownersand shareholders of privatelyowned businesses, whetherconsidering a sale now or simplyplanning for the future.

Books can be downloaded atwww.bcmscorporate.comor call 01635 296191.

*Also available in hard copy

Free businessevaluationmeetingsFree and confidential businessevaluation meetings offer you theopportunity to find out moreabout us and how we can assistyou in achieving a maximisedsale price. The majority ofbusiness owners choose to meetus at our head office nearNewbury, Berkshire or regionaloffice in Haslingden, Lancashireso that, in addition to discussingtheir requirements, they can alsoview our offices and resources tofully understand how we supportour clients throughout the saleprocess. However, our BusinessManagers are also able to visityou either at your offices oranother suitable location. Eachmeeting typically lasts 90minutes, however the length ofthe meeting is dictated by thetime you feel you need.

To arrange a meeting please call01635 296191.

Free half dayseminarsAt these free half day seminars,which attracted nearly 2,200business owners last year alone,we reveal how our refreshinglydifferent approach to selling abusiness works and why this, asopposed to the traditionalmethods, leads to a maximisedsale price. A step-by-step guidetakes attendees through our saleprocess, from preparing acompany for sale, contactingpotential acquirers and receivingoffers through to pricenegotiation and sale completion.A fascinating collection of casestudies provide many invaluablelessons. Each seminar providesan essential insight into the manypitfalls of the sale process andthe methods necessary to avoidthem.

To book onto a seminarvisit www.bcmscorporate.comor call 01635 296191.

FreeservicesIf you are considering selling your business, either now or in the future, pleasetake advantage of the free services below.

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In this issue of i D E A LDeal completions page 4-5A selection of just some of the deals BCMS Corporate hascompleted in the last quarter

I can see clearly now page 6-7Statistics reveal benefits expected by an acquirer areoften threatened by poor communication and planningpre-deal, for the post-deal period. The BCMS Corporateapproach addresses such risks, whilst acting in its vendorclients’ best interests, it also helps acquirers to reacha much clearer understanding of deal benefits and howto realise them.

Client interview – Visualsoft page 8David Cant, Managing Director of Visualsoft Limitedtalks about his experience of selling his business.

Ask us page 9Malcolm Murray, Senior Business Manager at BCMSCorporate answers a question about the proactiveselling approach to selling businesses.

Look East page 10-11Interest in China is high on the agenda of many dynamic,growing businesses, BCMS Corporate is no exception– here we outline our plans for expansion into China.

Managing personal wealth page 12-13The Coutts approach to meeting the needs ofentrepreneurial clients

M&A terminology explained page 13What is an Earn-Out and should you agree to one?

International news page 14BCMS Corporate is in expansive mood

Philanthropy page 15Charitable work by BCMS Corporate and staff

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I’m pleased to say that the optimism I conveyed in the lastissue of iDEAL was not misplaced. Our own internalmeasures continue to point to a healthy smaller andmedium-sized acquisitions market. There has been anoticeable upturn in buy-side and sell-side activity sincethe start of this year. This time last year we were receivingan average of 4 unsolicited enquiries from prospectiveacquirers looking for ‘targets’ each month. This yearthough, unsolicited enquiry levels have risen to 30 inJanuary, 79 in February and 65 in March. March alsorecorded the second highest monthly number ofnegotiation meetings, in the 22 year history of BCMS,between our vendor clients and prospective purchasers.

In this issue there are some interesting observations onwhy the BCMS Corporate approach is not only good forsellers but also addresses some of the historicalweaknesses which threaten post-deal gains for acquirers.There is news on our expansion in China, USA and Europe,which continues to ‘buck the trend’ in the corporatefinance sector. Also featured, a selection of case-studies onsome of the deal completions of the last few months, andcharitable work which the Company and some of our staffare involved in.

You can access free information about what motivatesbuyers from our website or by attending one of our freeseminars held each week, more details on the adjacentpage. Finally, if you have any comments or questionsabout this issue of iDEAL or any matter concerningbusiness sales, please do not hesitate to get in touch.”

Brian Rebbettes - Chairman

“Welcome to the

spring issue of

iDEAL, I hope you

will enjoy reading

our modest

contribution to the

current economic

debate and climate

for business sales.

iDEAL is published quarterly by BCMS Corporate, Kingsclere Park, Kingsclere, Newbury, Berkshire, RG20 4SW, UK and is copyright protected. Reproduction in whole or part without written permission is strictly prohibited.

While every care has been taken during the preparation of this magazine, BCMS Corporate cannot be held responsible for the accuracy of the information herein or for any consequence arising from it. BCMS Corporateaccepts no responsibility for the views expressed by contributors. Opinions expressed do not necessarily reflect BCMS Corporate policies. The articles in this magazine are intended to be for general information only andshould not be used as the basis for divestment decisions. BCMS Corporate, its staff and contributors do not accept any liability for any loss suffered by readers as a result of decisions made purely on the basis of thecontents of this publication.

Professional advice should be taken in relation to all divestment decisions. BCMS Corporate is a trading style of BCMS Corporate Limited.

i D E A L

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Launched in the late 1980’s, TheDriving Instructor Centre supplies

some 3,200 new and nearly newcontract hire and lease vehicles a yearto a wide range of independentdriving schools across the country.BCMS Corporate managed the sale to

car finance providers Hitachi CapitalVehicle Solutions. The DrivingInstructor Centre, which employs 50people, will continue to run as an

autonomous business. It is currentlyin the process of rolling-out anationwide network of dual-controlvehicle centres throughout 2009 aspart of an ambitious plan for growth.Says Luc Juffkins, BCMS Corporate

Deal Leader: “We are absolutelydelighted to have found a buyer forThe Driving Instructor Centre. It is afantastic business, with hugepotential, and I am confident that itsnew owners, Hitachi Capital VehicleSolutions, will provide it with themeans necessary to continue to leadthe way in the supply of dual-controlled vehicles in the UK.”

BCMS Corporate takes leadin sale of The DrivingInstructor Centre

BCMS Corporate has completed the £11.8 million saleof The Driving Instructor Centre, the number one provider

of dual-control vehicles in the UK.

Adds Mark West, Director at TheDriving Instructor Centre: “Under newGovernment reforms, the driving testis becoming much tougher andlearners will soon be required to takearound 50 lessons before they areallowed to sit their tests. Also, whenunemployment grows, people whohave never driven before often decideto invest in driving lessons to improvetheir job prospects. All these factorshave led to greater demand for dualcontrol cars and we envisage that withthe support and financial backing ofour new owner, the business willcontinue to expand.”For deal summary see panel right

B C M S C o r p o r a t e • D e a l c o m p l e t i o n s

BCMS Corporate has completed the multi-million pound sale of Saygrove Defence& Aerospace Group Ltd to US-based Triumph Aerospace Systems Group.

Saygrove set to soar after sale to Triumph

Saygrove, based in North Wales, designs andmanufactures proprietary actuation and motor control

systems for aerospace and defence applications and morerecently have specialised in all electric solutions.

BCMS Corporate, identified a significant number ofpotential acquirers and generated multiple offers for the70-strong business from interested parties before agreeingterms with Triumph Actuation andMotion Control Systems-UK.Luc Juffkins, BCMS CorporateDeal Leader commented: “We’reabsolutely delighted thatwe have been able to completethe sale of Saygrove to Triumphin such a relatively short

period of time. Although the economy is going through atough time at the moment, BCMS Corporate continues tobuck the trend in the corporate finance sector. There isstill strong demand from acquirers for good companies;our unique, proactive marketing approach to sellingbusinesses enables us to locate buyers that mightotherwise not be aware of the opportunity to acquire ourclients businesses.”For deal summary see panel right

BCMS Corporate given topmarks by leading electrical

testing specialists

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BCMS Corporate has managed the sale of two of the Country’sleading electrical testing and inspection specialists – BeaumontElectrical and Powertest – in a multi-million pound deal. BCMSCorporate has recently completed a total of six deals in thissector alone including the sale of Precision Monitoring and

Control Limited in December last year.

Beaumont and Powertestapproached BCMS Corporate to

identify a single buyer for the Group,who between them employ more than200 people.Based in Hull and Haywards Heath,

Beaumont and Powertest provide arange of accredited services tocompanies of all sizes. Members ofthe National Inspection Council forElectrical Installation Contracting(NICEIC), services range from portableappliance to electrical installationtesting.Significant interest was generated in

the Group and Faceo FM (UK)emerged as the strongest buyer overthe course of meetings with variousinterested parties.A complex deal, it involved

extensive liaison with its parentcompany Faceo, the French-ownedglobal facilities management group.

Explains Bob Jones, BCMS CorporateDeal Leader, “This was a highlyunusual transaction for BCMSCorporate involving not just the saleof more than one company, but also aforeign acquirer bound by foreignacquisition laws. We introduced ‘asbLaw’ to our clients, Karen Lord,corporate finance partner providedtremendous support throughout andmaintained deal momentum in theclosing stages. This outcome is atestament to our ability to managecross-border transactions.”Adds Stephen Wrinch, Managing

Director of Powertest: “We areabsolutely delighted to havecompleted the sale of Beaumont andPowertest to Faceo FM (UK), andwould like to take this opportunity tothank BCMS Corporate for theircontinued support throughout.”For deal summary see panel right

B C M S C o r p o r a t e • D e a l c o m p l e t i o n s

Deal summarysDriving Instructor Centre:

Potential acquirers identified 269

Non-disclosure agreements(NDA) signed 48

Qualified acquirer shortlist 6

1st and revised offers 9

Deal durationfrom ‘live to market’ 13 months

Saygrove:






Beaumont and Powertest






Deal summary key

Potential acquirers identified: the number of prospects

identified by our in-house team of researchers through

their initial desk research.

Non-disclosure agreements (NDA) signed: the number

of NDA’s represents the number of potential acquirers

which have indicated an interest in our client’s business

by requesting further information. Before this is given

an ‘NDA’ is signed by them.

Qualified shortlist: the result of an exhaustive process

undertaken by our project managers to ensure the most

suitable potential acquirers are taken through to the

latter stages of the deal.

1st and revised offers: the result of our work to ensure

the post-deal benefits of the acquisition are clearly

understood by the acquirers.

Live to market: the point at which our specialist

Prospect Generation Team start to speak to potential

acquirers about an opportunity to acquire a client

company.

I can see clearly nowI can see clearly nowBecause of the vendor warranties and

indemnities contained in the ‘Sale and Purchase

Agreement‘ and subsequent ‘Disclosure Letter’,

some acquirers and their advisers are over reliant

on them as a replacement for a thorough

consideration of the merits of a deal.

B C M S C o r p o r a t e • M & A d o c u m e n t s w a r n i n g

Acommonly held belief is that theacquirer holds ‘all the cards’

when undertaking an acquisition,however, statistics reveal that theacquirer often ends up with ratherless, in terms of post-deal benefits,than they ‘hoped’ for. Research bySociété Générale (SG)(Source:Moneyweek) ratherdepressingly reveals that just 30% ofacquisitions can be considered asuccess, a staggering 70%, they found,fail to deliver some or all of theexpected benefits – in the worst casescenario the ‘wrong’ acquisition candestroy value entirely. I’m sure theLloyds Banking Group board is rueingthe day it allowed itself to beencouraged to acquire HBoS, theresult of this acquisition was amassive destruction of value in whatwas a relatively healthy Lloyds TSB.Needless to say, the RBS acquisition ofABN Amro is also a high profileexample of such value-destroyingdeals.

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B C M S C o r p o r a t e • M & A d o c u m e n t s w a r n i n g

DRAWING CONCLUSIONS

What can we conclude from the SGfindings? Interpretation of statistics isa contentious issue but you mightreasonably presume that manyacquirers over pay for targetcompanies. You could equally assertthat vendor management teams fail todisclose or understand material factsabout their business which, whendiscovered post-deal, have acatastrophic effect on the combinedbusiness. This is almost certainly trueof the HBoS deal, it would appear thatdisclosure of the extent of the toxicdebt was poor, or at least, was poorlyunderstood, and if press reports areto be believed, Lloyds TSB also wentahead with the acquisition, allegedlyencouraged by Prime Minister GordonBrown, whilst relying on asignificantly truncated due diligenceprocess. This raises another pointwhich might be deduced from thestatistics; that acquiring managementteams fail to take the steps to fullyunderstand the business they werebuying and perhaps, gave insufficientthought to how the two companiesmight be integrated post-deal, toproduce the intended benefits. Theissues of risk, price and valuecouldn’t possibly be accuratelyassessed with such an approach.

Interestingly, there is another pieceof research which bears a strikingcorrelation to the SG findingsmentioned above. KPMG(Source:Moneyweek) undertookresearch entirely independent of thatconducted by SG; it produced a veryrevealing statistic, just 30% ofacquirers were found to undertakeany detailed assessment of tangiblesynergies with the target company.These might include, cross-sellopportunities, cost savings, properlyconsidered forecasts for revenue andprofit growth. It won’t have escapedyour attention that this finding, 30%of acquirers who undertake detailedpre-deal assessment, matches exactlythe 30% of acquisitions whichactually succeed.

A BALANCED APPROACH

The BCMS Corporate approach toselling businesses has remainedunchanged since the Company’s

inception in 1987 yet remains unique;a founding principle is that thevendor must be transparent and hasas much to gain from helping theacquirer understand their business,its future potential and the post-dealbenefits, as the acquirer does. Ourbelief is that what is good for thevendor is ultimately also good for theacquirer; they have many sharedobjectives which traditional sellingmethods can overlook. ‘Deal-making’all too often becomes an adversarialprocess, often due to poorcommunication and a mis-match ofexpectations, yet we know from morethan twenty years experience, it is farmore likely to succeed through a co-operative and open approach.Acquiring management teams whichremain detached from the processand drive their deals almostexclusively through advisers areexposed to greater risk.

Here at BCMS Corporate we seek tomaximise the price for the vendor.This should not be confused withselling at a price which means theacquirer overpays or is disadvantaged– what we strive for and what weachieve is a fair price for our clientsand for the acquirer. This can only beachieved if we not only thoroughlyunderstand our clients and theirbusinesses but also recognise theacquirers’ needs. We understand andappreciate their need for clarity aboutwhat it is they are buying and itspotential, so we set out a‘conservative’ [agreed by both parties]post-deal synergy plan, bespoke toeach acquirer, including a financialillustration of the cross-sellopportunities, the growth prospects,cost savings and any other suchtangible gains. The acquirer can then,with much greater certainty, removesome of the risk element from theirprice offer for our vendor clientscompany. We do this for all short-listed acquirers to be able to identifythe best match-up, an acquirer wherethe gains are most significant.

PRICE AND UNKNOWNS

This approach often generates adramatic uplift between first andsecond offers from each acquirer, thefirst offer heavily weighed down by

the unknowns and the second revisedupwards, driven by the clear businesscase we provide. Perhaps the mostdramatic example of this is where thebid spread was a remarkable £19.6million. The same acquirer submitteda first offer of £3 million for acompany they eventually paid £22.6million for. Sceptics among you willno doubt conclude that this might fallinto the HBoS category of deals; infact, our clients agreed to an earn-out(see ‘Terminology Explained’ in thisissue of iDeal, page 13) based on ourpost-deal business plan. All theprojections were hit and our clientsreceived the maximum consideration.Incidentally, a return on investment(ROI) price, based on historicalprofits, would have been very close tothe original £3million offer which, asit transpires, would have been a verybad deal for our client and anexceptional deal for the acquirer –what we achieved was a fair price.

Our view is that the vendor shouldtake responsibility for ensuringtransparency and help the acquirer tomore easily identify and quantify thebenefits and by so doing, create agenuine win-win. A poorlyconsidered acquisition at anyprice is almost always a badone. A well reasoned,considered acquisitionarrived at through co-operation and opennessbetween vendor andacquirer, will almostalways lead to bothparties achieving theiraims.

You can read more onthis subject by requestinga book,free-of-charge, written byDave Rebbettes, oneof the founding directorsof BCMS Corporatefrom our websitewww.bcmscorporate.com.

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B C M S C o r p o r a t e • C l i e n t i n t e r v i e w

Why did you decide to sell yourbusiness?

‘We felt that we were hitting the topof a cycle and without getting someoutside stimulus the business wouldstart to decline. We also thought thatour profits were peaking and it wouldbe a good time to sell.’How did you find out about BCMSCorporate and why did you select usto sell your business?‘The first thing I got was a mailshotthrough the post giving informationabout a seminar. The reason Iselected BCMS Corporate is because Iliked the approach with regard totargets and, as they have a massivedatabase, I felt that they could offer alot of contacts, whereas others Iapproached did not have theresources.’How did you feel the sale process wasmanaged?‘I feel it was managed very well, noproblems at all.’How important was confidentialityand why was this?

‘Reasonably important, but eventuallythe story can get out, it’s not such abig issue.’How much did the sale process affectthe everyday management of yourcompany, if at all?‘It wasn’t a problem at all, not untilthe deal price and terms werecompleted and then we got into duediligence which was a headache.’Are your staff staying with thecompany and was this an importantfactor is the sale process, if so why?‘Yes, the staff stayed, and it was animportant factor.’Will you have any involvement in thebusiness post sale and if not what areyour plans for the future?‘I’ve agreed to a two year earn-outperiod so I am contractually obligedto stay for two years. I haven’tdecided yet what I am going to doafter that period.’

A view to the future

Managing Director David Cant

of Visualsoft Limited, a leading

supplier of digital video

systems to the offshore survey

and inspection industry, talks to

iDEAL about the reasons for

selling his business and how

the sale progressed to a

successful conclusion.

Would you recommend BCMSCorporate’s services to anothercompany that is considering selling?‘Yes I would.’Do you believe that you sold yourcompany for maximum value?‘Yes, you will never know 100% if theacquirer would have paid more but Ithink it was a good deal for us. I don’tthink we would have got more fromanother buyer though.’What is your overall opinion of BCMSCorporate?‘I think the service they provide isexcellent and the concept of whatthey do is also an excellent idea too.The way they go about it is verythorough.’

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A: To understand what wemean when we talk about

proactive marketing, you need onlylook at how you market and sell yourown products and services. No doubtyou tailor your marketing literatureand sales approach to best promotethe features and benefits which yourproducts and services provide tousers. You define your market andthrough an appropriate sales andmarketing mix whether telesales,advertising, sponsorships,conferences and exhibitions forexample, you undertake deliberateactions to generate enquiries andachieve the desired result – to attract,sell to and retain customers. Theexact same sales and marketingtechniques used to sell any productor service successfully, we believe,must also be applied to selling acompany. We deploy appropriate techniques to generateappropriate enquiries. Traditional methods of sellingbusinesses are typically very passive. A regular anecdoteour clients share with us when they meet us for the firsttime is to describe their experience of investigating howto go about selling their businesses. Invariably they willhave raised the subject with their accountant and somewill also have spoken to brokers and other corporatefinance advisers. The ‘advice’ they receive ranges from“Who do you think might buy your business?” and thenbeing asked to compile their own list of potentialacquirers, to “We know who the buyers are”. In everycase, the advice is limited by the capacity or willingnessto undertake the exhaustive sales and marketing that isnecessary to achieve the best possible result. This lack ofeffort to market a business at the front-end of thetransaction means businesses either don’t sell or sell atprices well below their true value. What advisers are oftenmore equipped to do is handle the technicalities of thesale. Small wonder that less than eight percent of

Your Questions AnsweredIneach edition of iDEAL a senior member of our management teamwill address one

of a number of common questions we are asked by clients. In this editionMalcolm

Murray, Senior BusinessManager explains, in the context of selling a business, why

proactivemarketing is important.

company sales reach a successfulconclusion using this approach.The BCMS Corporate proactive

marketing approach cuts right acrossthe passive methodology employed byothers. Most owners of privatecompanies, in our experience,recognise that they will only achievethe best price and acceptable terms, ifthey are dealing with the mostappropriate acquirer. The objective ofour thorough, proactive marketing isto simply locate the best purchaser inthe first place. It is only after this thatthe focus needs to shift to thetechnicalities of the sale. Furthermore,finding the right buyer can have aprofound effect on the speed and easeof negotiations.Selling a private company is

fundamentally not an accounting orlegal matter, these do support the

process but, first and foremost, it is a sales and marketingmatter. Changes in traditional thinking are certainlyrequired – absence of success using traditional methodsmakes that argument loud and clear.To give you some sense of scale, ‘proactive’ in the BCMS

Corporate sense means that via our own dedicated researchteam, which has access to our own unique database ofacquirers and the best third party data, we initially identifyan average of 230 prospective acquirers for each clientcompany we take to market. We then speak with each oneto qualify them and identify those with the mostcompelling strategic fit before meeting with the mostsuitable. By this stage we will have reduced the ‘pool’ tobetween 3 – 6 prospective acquirers.There is absolutely no short cut to getting to this point if

a business is to sell and sell at a price that truly reflects thevalue. The initial search for the acquirer has to becomprehensive and the qualification meticulous anduncompromising.

B C M S C o r p o r a t e • Q u e s t i o n s a n s w e r e d

Q: You talk about ‘proactive’ marketing, what exactly does this translate toand how does it compare with other business sales approaches?

Look EastWithout doubt, politically and economically, China will continue to grow in importance, a day rarely

passes now where China doesn’t feature in news and business section headlines,but how can companies develop opportunities in China?

B C M S C o r p o r a t e • E x p a n d i n g i n t o C h i n a

The attention being paid to Chinais unsurprising. China is still

predicting its economy will grow byup to 8% this year: it has a vastsurplus accrued over the last six orseven years, generated by the credit-fuelled consumption and property‘bubble’ that has been prevalent inthe Western nations, which means itcan finance its own fiscal stimulusfrom reserves as necessary. It is amain provider of purchasing power[government debt] to the ‘West’,added to which, China has a vasthome market of almost 1.4 billionpeople, offering enormous latentgrowth potential. One carefullytargeted recent stimulus, caused aninstant 25% increase in new carregistrations for example.

DEAL SOURCING MADE EASY

China is not just an investmentdestination for larger firms butrepresents a significant opportunityfor smaller and medium sizedcompanies that are sufficientlyflexible and entrepreneurial. Anycompany with growth aspirations anda good quality management teamwould be wise to at least considerwhat China has to offer.

Deal sourcing (joint ventures,acquisitions, investments) in China isnotoriously difficult with companyinformation either unreliable, not inthe public domain or spread acrosshundreds of sources in a variety offormats. As in more developed M&Aeconomies, but to a greater extent inChina, even established private andinstitutional investors/acquirers findidentifying the right target companiesto be ‘heavy going’. That though isabout to change, BCMS Corporateopens in China shortly to provideChinese business owners with exactlythe same unique approach to selling

all, or a proportion of theircompanies, as we provideto our clients in the UK, USA, Sweden,Turkey and Chile. For those unfamiliarwith our approach, we representvendors and assist them in takingtheir businesses to market, locate themost suitable potential acquirers and,negotiate a price which fully reflectsthe value of the business (for moredetail on the BCMS approach go towww.bcmscorporate.com and also seethe article “I Can See Clearly Now” inthis issue).

FROM ACORNS

Our clients tend to be in the£1million to £75million turnoverrange and in China our focus will beno different. Much of the cross-bordermerger and acquisition activity inChina to date has been focused onmacro-deals but, the country is nowvery aware of the vital role its smalland medium enterprises (SMEs) areplaying, and will continue to play infuture. In the most recent surveycarried out in October 2006, findingsrevealed that there are more than 4.3million SME companies in China. Theycontribute 58.5% of GDP, 50.2% oftaxation, account for 75% ofemployment, 66% of patents and 82%of new products of the country. Thisimpressive resource is packed withopportunity and will undoubtedly bethe breeding ground for some of theglobal brands in the near future. SomeChinese SME’s will grow to becomesome of the dominant players in theirhome market. Entrepreneurialactivity and innovation is now verymuch part of Chinese business culture.

OPPORTUNITY KNOCKS

It may be that you are already activein China, either through an existingwholly-owned business, through ajoint venture arrangement, or youmay be outsourcing manufacturing orother aspects of your business todrive down costs and remaincompetitive – in which case you willknow how rewarding a Chinesebusiness partner can be. For many ofyou though, this may in fact be acompletely new venture and as such,some further investigation beyondconsideration of acquisition orinvestment opportunities will beneeded. Useful contacts are UK Tradeand Investment (UKTI) and the China-Britain Business Council (CBBC), theytend to work together very closelyand both have a depth and breadth ofexpertise for existing or new entrantsto the Chinese market. Trade missionsare run frequently between the twocountries but are unlikely to result infinding the right strategicopportunity at the first attempt. As ameans of experiencing China for thefirst time though, they can be useful.

The BCMS Corporate service is notaffiliated in any way but will becomplementary to support, adviceand practical assistance availablethrough UKTI and CBBC. Once youhave decided continued or newexpansion into China is right for youand that an acquisition or investmentis a likely part of that process, BCMSCorporate will be uniquely placed toidentify relevant target companiesfrom our soon to be launchedproprietary deal-flow ‘intelligence’service. During a recent visit to China,BCMS Corporate directors negotiatedand signed important and exclusiveco-operation agreements with ‘EquityExchanges’, a national association forSME’s, Economic DevelopmentAgencies and key trade bodies.

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B C M S C o r p o r a t e • E x p a n d i n g i n t o C h i n a

11

These agreements will ensure thesmooth roll-out of BCMS Corporate(China) and will add to our ownintelligence gathering service throughexclusive and privileged access tomany of the best business sale andinvestment opportunities in China.

MUCH IN COMMON

The Chinese are generous hosts andanyone travelling to China is assuredof a warm welcome. There is, in ourexperience, a very good affinitybetween the British and the Chinese.Their way of doing business naturallylends itself to the more respectful,considered and patient approach thatlargely typifies the British way. This isnot to be confused with indecision. Ifyou have done your research and youclearly have something relevant totalk about, first meetings can movevery quickly into meaningful and fastmoving negotiations.

The Chinese also have a particularregard for the British, our history andthe achievements of what is, after all,a small island nation comprising lessthan 5% of the population of China.

The language barrier is a factor butthe number of English speakers isincreasing rapidly. There is asignificant emphasis on teachingEnglish in schools and there are manyChinese graduates, educated in theWest, who have returned home, whounderstand both Western and Easterncultures. Engaging a good interpreteror recruiting English speaking staff istherefore not particularly difficult.

In times of economic uncertainty,those companies that take practical,decisive steps to enlarge theirmarketing skills and embrace newbusiness opportunities around theworld will find that it is still possibleto thrive. China represents just suchan opportunity and for some it willpresent itself as a golden opportunityto excel.

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The management of personal wealth is, for the individuals

concerned, a unique experience. However, something shared by

many entrepreneurs is that with so much of their time devoted to

their businesses, dedicating time to their own personal finances is

a rare opportunity.

12

Furthermore, a high proportion oftheir personal wealth is often

locked within their own business;apart from their home, personalassets consist almost exclusively ofshares in their own company andowners are loath to invest in anythingother than their own stock. They findit difficult to focus on estate planningor protection issues, or whether taxcan be saved, when there arecustomers to be won and work to bedone in their business.

Entrepreneurs require a tailored andintegrated service for their extremelysophisticated financial needs. Theyneed the expertise of a dedicatedprivate banker who will have an in-depth understanding of their short,medium and long-term requirements.We often find that entrepreneurshave insufficient capital set aside toprovide for long-term personallifetime requirements, which mayinclude retirement planning andschooling fees, for example. And inmany cases, particularly thoselooking to expand their operations,they also need immediate access toliquid funds and this requires accessto a range of flexible lending productsoffering reserve lines of credit forstand-by use allowing them to borrowfunds without being tied into rigidrepayment structures.Recognising this and many of the

other wealth management needs ofthis group, in 1999 Coutts & Cobecame the first private bank toestablish a dedicated team of advisers

focusing on the entrepreneur’sspecific requirements. Today, Couttscan count almost one third, or20,000, of its UK clients asentrepreneurs - with a client basespanning the entire spectrum ofBritish industry. Coutts’ tailoredapproach to managing their wealthhelps clients to build up theirbusinesses, supports serialentrepreneurs in the buying andselling of businesses, whilst takinggood care of their private financialrequirements.Deciding on the crucial moment to

sell all or part of a business is one ofthe toughest decisions anentrepreneur can face. A whole rangeof dilemmas can come to the fore,from market timing to minimising thetax liabilities that can arise. Between 1998 and 2008 the Capital

Gains tax regime included taper reliefwhich meant that many people sellingsmall businesses or company shareswere taxed at only 10% on any gainthey made. The last Budget changedthis system completely. When anindividual sells a business, there is nolonger any indexation or taper relief.Instead, tax is charged at 18% on thedifference between the originalcapital investment, which is oftennegligible, and sale proceeds, with anallowance for the costs incurred inpurchase and sale.After many protests from

entrepreneurs that the effective rateof CGT charged on those selling smallbusinesses had risen from 10% to18%, the government brought in an

“Entrepreneurs’ Relief.” If youqualify for this, you can claim thatyou should pay CGT on only 5/9 ofthe first £1m of gain that you make.In practice, this means that you paytax at 10% on the first £1m gain. Entrepreneurs who are considering

selling their businesses are welladvised to seek advice early, toensure that their tax position isoptimised. For example, ifentrepreneurs’ relief is applicable,then a gift of shares in the companyto a spouse may in somecircumstances result in both beingable to claim the relief and thus paytax at 10% on £2m. Keeping all ofyour eggs in one basket is probablynot the best way of protecting yourfuture financial wealth. Diversifyingwealth is important in managingpersonal risk and avoids relyingsolely on the performance of onecompany, even one’s own, for acomfortable retirement. That is why itis vital for a private banker to raiseawareness amongst owners andentrepreneurs that their business isonly one piece, albeit a large piece, ofa larger picture. By neglecting theirwider wealth management, they caninadvertently be taking more riskthan necessary.Many entrepreneurs are suspicious

of pension planning, preferring to seetheir business as their pension.

B C M S C o r p o r a t e • F i n a n c i a l p l a n n i n g

A Tailored Approach

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Whilst this is often a justifiableattitude, it is also important toconsider the tax and diversificationadvantages that a pension can bring.In the last resort, pensions are usuallykept completely separate from anindividual’s other assets, which meansthat in the event of a business failure,they are normally not affected.Similarly, most entrepreneurs do notgive much attention to the impact ofInheritance Tax (IHT) on their estates,expecting that the value of theirbusiness will not be subject to IHTbecause of the exemption given byBusiness Property Relief. Coutts offers

By Perry Littleboy, Senior ClientPartner at Coutts & Co.

For more information about becominga Coutts client, [email protected]; call 0207 7531427 or visitwww.coutts.com/entrepreneurs

its clients an Estate Planning andWills service to ensure that, in thecase of a death, assets pass in the waythat they would want and with nounnecessary Inheritance Tax. Advice on financial planning

decisions is only one aspect of theintegrated services which Couttsoffers its entrepreneurial clients.Clients won’t ask us to act for them,manage their money, find a mortgageor plan their pension unless theyhave absolute confidence in us. Beingbusy means they have to delegateresponsibility to a trusted adviser,and that, essentially, is what we are.

B C M S C o r p o r a t e • F i n a n c i a l p l a n n i n g

An earn-out simply refers to the proportion of the total price an acquirerproposes to pay for a company which is subject to the meeting of certain

pre-determined financial targets in an agreed time frame, post-deal.

BCMS Corporate, on the sale of our clients’ businesses, seeks to maximise thesale price.We achieve a choice of buyers for our clients – across the range of bids for a

client company it is not unusual for one or two acquirers to include asuggested earn-out as part of their offer. It is then possible for our clients todecide whether the offers which include an earn-out are the most attractive.An offer including earn-out can prove attractive particularly where thebusiness owner is staying with the business and can therefore continue toinfluence performance, or where the immediate consideration alreadyexceeds vendor expectations. An earn-out also lessens the perceived risk foran acquirer. A vendor who agrees to an earn-out should be confident that thebusiness will perform to expectations and be willing to risk the deferredproportion of the price should targets not be met.There are though, a number of considerations which must be taken into

account and resolved to avoid future disagreements should an earn-out beagreed, these include:• An agreed method for calculating profits post-deal• A clear policy on how costs will be allocated by the acquirer in the

enlarged group• Reassurance over the ability of the acquirer to make the agreed payments,

possibly with security over assets, shares or by money held in ‘escrow’ in asecure account

• Tax efficiencyEarn-outs can be a very effective mechanism for maximising sale price but

due consideration must be paid to the advantages and disadvantages in each case.

What is an Earn-Out andshould you agree to one?

B C M S C o r p o r a t e • T e r m i n o l o g y e x p l a i n e d

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North AmericaDespite the negative economic

news coming out of the USA, thedemand for BCMS Corporate’sservices is still gathering pace. Wehave now opened our office in FortWorth, Texas, adding to our firstoffice opened just 18 months ago inManhattan. Deal origination isalready ahead of projections in Texas,so much so, that a further office willopen in Colorado in the Autumn. Weare now running our popularseminars across the USA and intoCanada.

ChinaBCMS Corporate will shortly

commence operations in China.Directors have already made visits toBeijing during which several co-operation agreements were signedwith equity exchanges, tradeassociations, SME associations andeconomic development agencies. Wewill be providing the 4.5 millionSME’s in China with access to thesame unique business sales approachwhich is delivering such effective andconsistent results for our clients inthe UK, USA, Scandinavia, SouthAmerica and the Mediterranean. Forfurther information regarding ouroperations in China please turn topage 10.

TurkeyExpansion is continuing apace from

our Turkish office, pioneered byMehmet Soyer who heads up BCMSCorporate operations in Turkey. He isnow taking the BCMS business salesapproach into Romania and Bulgaria.Mehmet has appointed businesspartners in Bucharest and will overseethe roll-out of our seminars acrossRomania, commencing May 2009,with our first event in Bucharest.

Not one to ‘rest on his laurels’,Mehmet has also just completed ourfirst seminar in Bulgaria inconjunction with the BulgarianChamber of Commerce and Industry(BCCI). The seminar attracted some46 business men and women and,being the first of a planned series ofevents in Bulgaria, 4 journalists alsoattended.

In keeping with the theme ofpartnerships, Mehmet has also signeda co-operation agreement with theBulgarian Industrial Association (BIA)and he will be delivering a seminar tomembers of the BIA in April 2009.

Our international offices continue to do welland expansion is very much on the agenda.

Scandinavia Building on the achievements of

our offices in Sweden and Norway,BCMS Corporate has now opened anoffice in Denmark – this will be leadby Peter Lowegren. A schedule of ourunique, free-seminars for businessowners on how they can maximise thevalue of their businesses when theywish to sell, is already in place, withthe first to be held in Copenhagen onJune 18th.

B C M S C o r p o r a t e • I n t e r n a t i o n a l

Internationalnews

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BCMS Corporate extends its work in India

The “Poor and Needy Benefit Trust”, the charitable trustestablished by the directors of BCMS Corporate, has

once again had a busy quarter. Each year a director ofBCMS Corporate visits the projects to ensure that themoney donated via the Trust is well targeted and thatfuture needs are taken into account. This year SteveRebbettes travelled to Kakinada spending time at theSchool built by the Trust.

The School provides an education for 370 children frompoor homes at any one time and has subsequently beenextended to incorporate permanent accommodation for 50orphans and 25 widows.Steve Rebbettes said, “We regard it as a real privilege to

be able to help the children, widows, their carers andteachers in India; visiting India on a regular basis remindsus how fortunate we are and redoubles our efforts to domore charitable work both in India and at home. I wasaccompanied this year by my eldest daughter who foundthe experience very rewarding.” He added, “We haveextended the work of the Trust which is also nowsponsoring an on-going self-help village project inNorthern India – the aim is to support the villagers indeveloping effective farming of livestock and crops with aview to self-sufficiency.”Other notable activities of the Trust include funding

knee surgery for one lady whose mobility was seriouslyimpaired; paying for radiation treatment to treat acancerous condition; covering the hospital costs of a littlegirl seriously injured in a road accident and paying forsurgery for a teacher at the School to correct a ‘hole in theheart’.

Power Walk

BCMS Corporate project manager Clare Power hascompleted what, at times, was a gruelling 120

kilometre trek along the Great Wall of China raising morethan £2,500 for St John’s Ambulance.

Clare explained, “I’m really pleased to have raised somuch for St John’s Ambulance. I travelled alone to Beijingwhere I met up with other volunteers – we then tackledthe trek as a group. The scenery was beautiful but in partsmy attention was totally focused on the Wall which wasimpossibly steep and crumbling in places, these partswere physically exhausting and a little scary butsuccessfully completing the challenge gives me a greatsense of achievement.”

Basingstoke RFU

BCMS Corporate has sponsored Basingstoke RugbyFootball Club under 15s team for next season. The

sponsorship will allow each player to have their ownwater-proof training suit. Players come from a wide rangeof backgrounds and for years the team has relied on kithanded down to them from the age group above. Theteam will now be able to turn out uniformly for trainingand matches and is properly equipped for all weathers.

Basingstoke RFC has itself chosen Naomi House Trust astheir adopted charity for this year and will be engaged invarious fund-raising activities on behalf of the Trust.Based near Winchester and founded in 1997, the Trustruns a children’s hospice providing care for local,terminally ill children.

B C M S C o r p o r a t e • P h i l a n t h r o p y

Philanthropy“Do what you can, with what you have, where you are.”Quote on philanthropy attributed toTheodore RooseveltIt never ceases to impress us how much of theirtime many of our staff and indeed our clientsdevote to community and charitable causes.In each issue of i D E A L we will highlight justsome of the community and charitableactivities our staff are engaged in together withdetails of some of the charitable projects BCMSCorporate as a company also participates in.

BCMS Corporate Plantagenet House Kingsclere Newbury Berkshire RG20 4SWT: 01635 296191 F: 01635 299502 E: [email protected] www.bcmscorporate.com

Please find below a small selection of our recent deals. For a full listing of these please visit www.bcmscorporate.com/success-gallery

Latest success gallery