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René Carayol’s expert column In the world of M&A, fear is the driver and history is repeating itself | Page 2
EXCLUSIVE INTERVIEW
MERGERS & ACQUISITIONS
Queen of the mega deals EXCLUSIVE INTERVIEW
Financier Amanda Staveley on tough negotiating, advising Middle East investors… and being kind to people
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Business Reporter · December 2014
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Mergers & acquisitions
Opening shots René Carayol
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S GLOBAL markets bounced back towards the end of 2013, confidence surged around mergers and acquisitions (M&A), really hitting a peak in the first half of 2014. There was some $1.7trillion worth of M&A activity announced. This is the highest halfyearly total since the crash of 2007. The greatest activity was in the highly regulated environments of healthcare and telecoms, accounting for $319billion and $261billion respectively. The lack of similar action in the fiercely regulated world of financial services has been striking. Two proposed mammoth transactions in the telecoms sector were the mergers of Time Warner and Comcast, at some $70billion, and DirecTV with AT&T at $67billion. Similarly, in the world of pharmaceuticals, the aborted approach for AstraZeneca by Pfizer was set at $90billion and the hostile bid by Valeant Pharmaceuticals of Canada for Allergen of the UK was $62.4billion, causing the M&A bar to be significantly raised. Unsurprisingly, the world of financial services has not been seen as anywhere near as attractive given the fearsome tenacity of the European and US regulators. This has led to the perception that many of the banks now appear to be running their businesses to meet the burdensome requirements of the regulators, rather than for customers or shareholders. Therefore,
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When fear drives M&A activity, defensive mindsets rarely achieve the desired outcomes it is still viewed as too volatile to risk getting further entangled in the web of interventionist regulation. The pharma market has started to be dragged down by a slowdown in profits. Some CEOs are left hoping to improve their bottom line by consolidating with a rival, primarily for synergistic savings. Some also want to rejuvenate their failing efforts at R&D – just being bigger has yet to deliver more innovation. When fear drives M&A activity, defensive mind-sets rarely achieve the desired outcomes. Telecoms, on the other hand, feels much more confident and aggressive, perhaps harking back to the big globalisation deals of the early part of the century. Then the likes of Vodafone and AT&T used their muscle aggressively to achieve huge economies of scale with the added desire to dictate pricing. This delivered the
obvious cost savings that result when bringing two very similarly structured, but geographically spread giant organisations together. Recent M&A activity in the technology marketplace, which is far less regulated, has also seen fear as the driver. Facebook has utilised its high-priced stock to acquire increasingly popular and fast-growing rivals, such as WhatsApp and Instagram, at hugely inflated prices. This sort of activity is less about growth, and more about ultra-highly rated businesses beginning to stall. We have even seen the rise (and fall) of the very provocative tax inversion strategy which was behind Pfizer’s failed bid for AstraZeneca, wanting to be domiciled in the UK to benefit from a 21 per cent tax rate as opposed to the 33 per cent corporation tax in America. M&A very rarely learns from history and CEOs are always keen to be in control of a much bigger empire. The scramble of the early months of 2014 has been tempered by the slowing down of global markets leading to a fall in confidence. The optimism at the outset of big deals soon diminishes as the management of the organisation gets i nc reasi ngly suc ked i nto t he painstaking and increasingly complex world of integration. One could infer t hat old-world consolidation hopes that will just about equal 1.5, whereas the new world of tech and telecoms still dreams of one plus one equalling three. Optimism can be a force multiplier in M&A, but only when the motivation is both positive and growth oriented.
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Mergers & acquisitions
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By Tim Adler
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HE GLOBA L mergers and acquisitions market will be worth $3.5trillion (£2.2trillion) this year, according to Cass Business School. Leading global sectors so far in 2014 have been telecoms (the average deal over the past year has been worth $1billion), health care ($426million) and real estate ($421million). The total value of technology deals alone has been worth $225billion. The M& A market peaked in 2007 at $4.3trillion worth of deals. However, after the recession hit, deal volumes fell to $2-3trillion between 2008 and 2013. Scott Moeller (below), director of the M&A Research Centre at Cass Business School, says: “The market is coming back from a trough. Finally, this year it looks as if we are going to break out of that $2-3trillion trough. The third quarter is the busiest three months for deals, peaking at the year end.” During the recession, companies observed how others got into trouble because they did not have enough cash. Being conservative about mergers and acquisitions became the norm. But those purse strings are now being gradually loosened. “The market is right, the equity market is riding high and prices look good,” says Roger Mills, emeritus professor at Henley Business School. Experts say there are several factors as to why the M&A market bounced back. Some companies are under regulatory pressure to restructure, especially in the financial sector. “One company’s divestiture is another company’s acquisition opportunity,” says Moeller. Activist shareholder funds in America have shaken up complacent management – such as eBay spinning off PayPal – and sovereign funds have come out of the Middle East. Professor Mills says: “The trouble is that as these companies become bigger monsters it’s difficult to create organic growth for shareholders. An individual arm may be doing really well but that’s not going to be reflected in the share price so an M&A becomes attractive. If you’re chief executive and you want to keep your job, there’s nothing better than going on the acquisition trail. It used to be that
eBay span off its subsidiary PayPal last year in an attempt to increase agility
M&A markets to hit £2.2tn jackpot by 2014 the only company that made money out of an acquisition was the company being bought because their share price went up. The acquirer was punished in the market. But it seems now that both parties are benefiting.” Moeller says: “There’s clearly a lot of cross-border international activity taking place and the market does reward the bold rather than trying to grow organically, so you’re seeing a broadening of the market in that way. But until we see deals in t he i ndust r ia l sec tor
coming through, we haven’t truly got ourselves out of the trough.” In fact Professor Mills believes the total volume of M&A activity has been underreported. Technology companies are acquiring majority stakes in companies through incubator funds that fly under the radar. The accepted norm is that two thirds of mergers fail. The combined value of the synergies – the incremental value – does not pay off compared with the acquisition price. But Moeller says the percentage of failed deals is going down. Today only about half of mergers
fail compared with 60-70 per cent in the past. “There’s been a lot more focus on what happens after the deal closes. Keeping a marriage going is a lot of hard work,” says Moeller. “However if you do succeed, then the sky’s the limit in terms of what you can achieve.” So, will this buoyant M&A market continue? Professor Mills thinks not. “What’s going to happen is that the stock market froth will disappear. At the end of next year I would be monitoring things more closely. We’re at the end of a finite run.”
Cash is king when it comes to acquisition deals, say banks BT IS BEING urged to pay cash to acquire O2, the mobile company it once owned, rather than hand over a rump of shares to Telefonica, its Spanish rival. Near-zero interest rates combined with an upturn in the global economy have increased global M&A deal volumes to the highest levels since 2007, according to Dealogic. “The big theme is the return of confidence… that’s the key ingredient of what’s been missing. CEOs and boards have become open-minded in terms of doing M&A deals,” says Hernan Cristerna, co-head of global M&A at JPMorgan.
In terms of deal volume, the larger proportion has been from big transactions in the $10billion to $25billion segment – the bread-andbutter M&A market has been down. “Inhibitors have been shocks in Russia and the Middle East,” says Matthew Ponsonby, head of M&A EMEA at Barclays Bank. Low interest rates have meant cash has been the starting point of most transactions. However, most big companies want to maintain their investment-grade status, so they turn to using stock if it starts to impinge on their credit rating. Michael Findlay, co-head of
corporate broking Bank of America, says: “From a seller’s point of view, if you’re on the receiving end of an offer, cash has a lot of value whereas hundreds of thousands of shares will be difficult to move around. Cash is a nice way for you to exit the business.” Cristerna says the market usually punishes acquirers when they buy another company. “The buyer’s share price historically is been close to neutral, with some bias to a wait-and-see reaction,” she says. “What’s been different this year is the average reaction to a buyer’s share price has been up by 3 to 4 per cent.”
O2’s return to the BT fold could be made more likely with a cash payment
Another key trend has been European companies seeking growth in other territories. European companies want exposure to regions where there is greater confidence about short-term economic recovery. “The toughest thing to achieve is organic growth ,” says Findlay. “One way to move your business forward is through acquisitions as people take advantage of the current beneficent financing conditions.” Cristerna expects global M&A deal volumes to continue to grow next year, albeit more slowly. He predicts a 10-15 per cent growth rate rather than the 30 per cent seen this year.
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Carving out non-core assets: Redefining the measures of success
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reaking up is hard to do. Divorces can be painful, time-consuming and expensive. The same goes for selling and acquiring non-core assets that have been part of a corporate family. Carve-out transactions (i.e. selling part of a larger parent company) are becoming increasingly popular. If managed well, the deal will appeal to both trade and financial bidders, can facilitate a change in corporate strategy and provide a financial injection for future growth. This may explain why the growth of these transactions has continued since the M&A peak in 2007, bucking the general deal trend. But if managed badly, a transaction can be derailed permanently (or significantly delayed) and value can be left on the table for both parties. Most people think of deal completion as the key measure of success. A vendor is happy if they achieve their target sales price, while a purchaser is happy if the acquired business runs smoothly following completion. It’s a traditional view that is both short-term and overly simplistic.
Vendor perspective Headline price is undoubtedly important, but deal value should be viewed more broadly.
To maximise value the vendor needs to prepare the business well in advance of sale. Applying a private equity lens and having a more commercial mindset unshackled from the parent can uncover cost saving and revenue creation opportunities. These might include optimising the organisation, improving working capital and creating a simpler right-sized IT environment for the standalone business. Critically though, the business plan needs to be believable, underpinned by robust plans. A carve-out also provides an opportunity for the retained business to take a good look at itself. At the very least, vendors should mitigate any adverse impacts from the disposal, such as worsening supplier terms and stranded central resources that have historically supported the divested business but will remain with the vendor. This can trigger more widespread changes to the retained organisation structure and operating model. Beyond the headline price there is also always a significant cost to execute the separation. This shouldn’t be underestimated and the liability for each party should be well defined.
Purchaser perspective From the buyer’s point of view the hard work starts once the deal is
done. Achievement of a business plan that reflects the revenue and/or cost upsides built into deal valuation is key. Translating the financial targets into executable plans and driving change through the business requires considerable management focus. The medium/longer-term change should be balanced with the need to stabilise the newly acquired business and transition away from the vendor. This is not a simple task and can stretch resources to breaking point. The right management team needs to be in place, but if changes are required they should happen as soon as possible, as everybody needs to be on board, fully committed and able to play their part. Successful purchasers strike the right balance between challenging/supporting the management team and letting them get on with running the business they know best. In conclusion, vendors and purchasers need to recalibrate their success measures for carve-out transactions, adopting a broader view of deal value and understanding the key drivers of value that can be controlled. Alan Dale (left) is head of business consulting at Grant Thornton +44 (0)20 7865 2777 alan.dale@uk.gt.com
The need for a holistic approach to M&A has never been more important
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or the first time since 2007, the total value of M&A transactions exceeded $3trillion globally in 2014. What has changed over the recent past to stimulate this activity? Low interest rates, a world economy that is sluggish in aggregate but presenting hot-spot opportunities in certain geographies and industries, and debt markets that are today reasonably benign. After many years of conservatism and balance sheet reinforcement, boards are now more comfortable with the risks involved in domestic and cross-border M&A. A greater sense of urgency has also been injected into corporates’ strategic thinking by institutions and activists that are keen to see balance sheets deployed more effciently and effectively. Traditional risk mitigation around transactions (financial, legal, tax, operational and commercial due diligence, stakeholder communications and post-merger integration planning) remain vitally important. With tensions between international M&A structures and national interest being played out at the highest levels of government, there is a now a pressing need for such traditional areas to be supplemented with considerations
of local, national and trans-national political risk, such as sudden and politically driven changes in tax policy and interpretation. Witness Abbvie’s proposed offer for Shire, a highly satisfactory deal for the target’s shareholders, scuppered by US government action on inversion deals, which cost Abbvie $1.6billion in break fees. While academic studies have consistently demonstrated that underestimation of post-merger risk has destroyed value, today, intangible, traditionally “softer” risks (public policy, political headwinds and tax) pose a significant impediment to both transaction completion and long-term value creation. The need for a holistic approach to M&A planning that includes consideration of reputation and communication challenges, as well as public affairs insight on government policy, has never been more important for companies both large and small. Edward Bridges is a senior managing director at FTI Consulting LLP 020 3727 1000 Edward.bridges@ fticonsulting.com
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EXCLUSIVE
Tim Adler
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INDING Amanda Staveley’s office on Park Lane proves as elusive as discovering what the financier actually does for a living. It turns out that the entrance is round the back. Similarly, putting your finger on how Staveley justifies her multi-million-pound fees is just as confusing. She inhabits a rarefied world where people pocket millions of pounds for apparently just making introductions. She hit the headlines back in 2008, as the golden girl who kept Barclays out of government hands by negotiating a £3.5billion lifeline from the Middle East. For that deal she pocketed £30million. The reality, she tells me, involves a lot of hard negotiating and, crucially, investing her own cash alongside that of her clients. Staveley, 41, has become a tabloid newspaper favourite: a glamourous former model and girlfriend of Prince Andrew, whose mother was a champion showjumper. Her career seems to have been an effortless canter, from running a restaurant to opening a technology conference centre, before brokering the acquisition of Manchester City Football Club by Sheikh Mansour bin-Zayed bin Sultan Al Nahyan, now deputy prime minister of the UAE. Her fee was reportedly £10million. In March, she advised Al Habtoor Group on t he acquisit ion the Intercontinental Budapest hotel. She is currently advising Middle East investors on a £1billion bid for three top London hotels: Claridges, The Connaught and The Berkeley. Staveley makes her entrance grandly late, having kept me waiting for 45 minutes. I should be irritated. But what nobody prepares you for is how disarmingly funny she is. At one point during our conversation I think both of us were on the verge of helpless giggles. Staveley occupies a unique position as the only western woman advising Middle East governments on business. So, what has she learned sitting alongside these powerful men at the negotiating table? “The more successful the person is, the less ego they have. I’ve found that the senior principals don’t have egos. The ego problem increases the further down the line you get – and especially with advisers such as accountants and lawyers,” she says in her warm Yorkshire accent. The most important ability to bring to the negotiating table is the ability to listen, she says. Staveley and her company PCP Capital Partners like to do their own drafting when it comes to heads of agreement. She tries to keep the accountants and lawyers out until as late as possible. She plans the deal on paper almost like a flow chart figuring out various scenarios. “The more that you can agree up front the easier it will be before you bring in professional advisers,” she says. What advice does she have for any businessman looking to sell their company? You need to make sure that your buyer isn’t just acquiring your company as a quick turnaround to sell on, she says. “From day one we set out a plan that everyone understands what they need from each other.” The seller should think about his exit strategy
Mergers & acquisitions
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The big interview Amanda Staveley
I don’t like how I used to be. These days I’m nervous about debt, which I used to litter around like confetti Amanda Staveley’s top tips for buyers and sellers Who are you selling to? Consider very carefully the type of buyer. Do you want investment or strategic help for your business to grow? What financial terms and long-term goals do you want to achieve? Is the buyer acquiring the business for strategic accretive reasons or because he wants to make a return? Valuation is critical. Ask others for independent advice as to how they would value the business you’re looking at. Often owners are protective and value businesses higher than you might. Integrating management. Do you need to bolster the incumbent management team much earlier than they do. Companies often leave it too late to put themselves up for sale where all the growth has been extracted, so there’s no future left for the buyer.
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nd young entrepreneurs need to make sure they’re not being bought to keep their disruptive business out of the market. She has seen bigger companies buy smaller ones just to keep their disruptive technology on the shelf. When it comes to acquiring a company, buyers need to ask if the acquisition fits with their strategic direction. A key issue is always going to be whether the company is worth what the seller wants – sellers often putting too high a value on their business. And does the company have stable revenue and stable profits? The most important factor, however, is the management team. “We won’t buy a business that doesn’t have exceptional management. It’s critical that you provide incentive plans for management teams once the deal goes through.”
to integrate it with your current structure? Existing managers need to have financial incentives to grow the business in the new merged company. Cash is always king. What room is there for companies to grow? Don’t leave it too late before selling your business. Too often owners run out of road when they decided to sell their business – your buyer needs room for the business to grow. Listen to what people are saying. The ability to listen to the other side is the most important quality to bring to the table. If you’re negotiating for somebody else, listen to what your client wants out of the negotiation. Staveley is feted as the woman who has the ear of vastly wealthy Gulf State investors. Three quarters of her investors are based in the Gulf. Increasingly, however, her client base include Americans and the French. Americans, of course, have a different attitude when it comes to business. They like everythinng locked down in watertight contracts. Arabs, by contrast, still do things on what they call a “handshake habibi [friend]” basis – their word is their bond, anathema to American corporate lawyers. But Staveley says her Arab investors are just as assiduous when it comes to due diligence as their western counterparts. “A lot of people think that Arab companies aren’t fastidious about doing due diligence, but that’s just rubbish,” she says. Concepts of time are different, though. Negotiations with Gulf States can take much longer than western businessmen are used to. “I’ve seen chief executives of big companies kept waiting for days to meet the right person. Timelines can be slightly different… your investor
may want to build a personal relationship. Plus, the Gulf States are hugely hospitable.” She talks about how she risked offending her hosts when she nearly severed her right hand walking through a plate glass window – using your left hand to eat and drink is deeply offensive to Arabs. Staveley gamely struggled on. The biggest difference, she maintains, is that deals may have to be structured using Islamic finance – Muslim investors are forbidden to either pay or receive interest. She looks skittish for a moment when I suggest that it’s difficult for most people to understand what anybody does to justify these multi-million pound fees. “I like building deals and building value for clients. The reason why we get paid a lot is that is that I get good results for my clients, and sometimes the deal may not come off, which means that I’ve spent all this time for nothing. I’m a good negotiator, a good strategist and a hard worker… I’m a perfectionist, you see.” She reveals that, unlike most intermediaries, she invests her own cash alongside her investors. “You’ve got to be prepared to put skin in the game. It’s easier to persuade investors when you yourself are in the deal.” Staveley hasn’t always been in the winner’s enclosure. She lost everything when the company she sold her tech conference centre to collapsed, and found herself sleeping rough. “That was the worst moment. I’ve faced near bankruptcy, and I’ve also seen extreme wealth,” she says, gesturing to her exquisitely tasteful apartment with its marble floors and Persian rugs. Photographs of Staveley greeting Arab potentates are everywhere. “I don’t much like how I used to be – the younger Amanda Staveley,” she says ruefully. “These days I’m nervous about debt, which I used to litter around like confetti. Everybody has peaks and troughs. Do what you love and you will be successful. You can hit rock bottom again anytime… so what I say is, be kind to people.”
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Arming against cyber-attack: The new threat to M&A
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mbarking on an M&A transaction has always been risk-prone for financial and operational reasons: will the two entities be a good fit; can integration be achieved; will anyone make money as a result of all the hard work? Over recent years, however, a new and serious threat to M&A has emerged, one that’s continually changing and becoming ever more sophisticated. That’s the threat of cyber-attack. How to manage it, along with cyber-security, is an issue concerning dealmakers and business leaders globally. In terms of likely targets for information that can be misused, every individual, company, even entire governments are in the frame. Personal banking, company strategy and national secrets all have their value to different agents. Therefore, cyber-security has become a universal issue, and one that inescapably impacts M&A. During the due diligence phase of a transaction, companies need to let down their defences so effective fact-finding can take place. Buyers interested in an asset must be able to scrutinise each facet of the business for sale and that means disclosing information and making it available for review. However, this opening in the usual fortifications creates an intrinsic vulnerability for the sell-side organisation. That vulnerability needs to be managed to protect everything from strategic
information to product roadmaps, from sales figures to personal contracts. This means stringent measures have to be applied to protect data to minimise risks throughout this period of relative openness. In the early stages of due diligence, sell-side teams often need to redact sensitive documents to keep certain information from parties invited into the review process, let alone defending it from those who should be actively excluded. As a provider of virtual data rooms for due diligence projects, Merrill DataSite is alive to the risks of cyber-attack and works to respond to market conditions, but more importantly it actively stays ahead of the issue. Over time, a number of multi-layer data security methodologies have been developed, leading to one of the most secure online repositories available. As an example, Merrill DataSite will not allow users to download any information (unless they are specifically enabled to do so) – rather, all documents are streamed as secure images through a proprietary viewer. Additionally, Merrill has recently completed a significant investment in a European data centre – this was in response to concerns from clients around the hosting of data in the United States. The information entrusted to
Merrill DataSite is encrypted in transmission (256-bit – the same standard employed for internet banking) and also “at rest” on the server to ensure it’s close to impossible to decrypt in the unlikely event of malicious physical intrusion to the data centre. In addition, during a deal, and even once a deal has closed, they offer reports that show who has looked at exactly what information in the virtual data room and when. This also acts as proof of disclosure should any disputes arise after the deal is done. Undoubtedly, some of the dangers of cyberattack are perceived as well as real. However, it’s a concern now and a trend set to continue for M&A, which means business leaders need every tool in their armoury to fight it. Mike Hinchliffe (left) is director at Merrill DataSite Michael.Hinchliffe@merrillcorp.com www.datasite.com
The four pillars: Planning an exit strategy T
hinking about the shape your business should be in ought to be at the forefront of your mind before going to market. It’s a good way to think about your business full stop. Vendors need to consider their exit strategies earlier. People often contemplate exit strategy in terms of just selling their business. Many owners only begin to plan selling six to nine months ahead of a possible exit. That’s not the way to optimise – you should be thinking at least two years ahead. Many businesses also have a right time to sell, but the owner hangs on too long. They run out of road in terms of where the business is going. And any buyer will be much more interested as to where a business is heading – not where it’s been. Also, by hanging on too long, you damage the sale prospects of the company you have spent so long building up. There are four pillars when it comes to exit strategy: • Strategy • Operational excellence
• •
Management Finance and risk These are things that all businesses should be thinking about, but exit strategy brings them into sharp focus.
Strategy Do you have a clear vision as to how you are building value in your business? That articulation of a value growth story is critical. Do you have a robust plan to deliver that value growth? A lot of businesses think about where their business is today, not where it could be tomorrow as a higher-value business. For example, a manufacturer should think about moving into becoming a highervalue solutions business. Any potential buyer will be thinking this way. Why aren’t you? And who are your buyers? Is there something you should be doing in your business that would make it even more suited to that optimum buyer pool?
Operational excellence Are you doing benchmarking about
how you are performing compared to your peers? Are there operational savings that your buyer can see but you cannot? As a seller you have just left that money on the table, which is not a sensible thing to do. Private equity houses have been good at stripping out those unnecessary operational costs. What savings could you be making yourself?
Management You need to think about your replacement as chief executive. It’s quite possible that your buyer will want you to stay involved. However, is the business too focused around you? What are you doing to tie in the rest of your team to shore up strategic execution if you do leave?
Finance and risk How accurate are your financial forecasts? Can you improve the quality of that information? And how vulnerable is your business to unexpected and unwelcome threats and change? Finally, remember that as a seller, you need to think about what you’re going
to do if you do step down. There will be a non-compete clause stopping you from going into direct competition. Stephen Baker (left) is a corporate finance partner at Grant Thornton +44 (0)20 7728 3100 stephen.baker@uk.gt.com
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Focus on pensions
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RICHARD HARDWOOD
Viewpoint: What’s the best way to save for retirement?
DIVISIONAL DIRECTOR OF FINANCIAL PLANNING, BREWIN DOLPHIN
IndustryVIEW
THERE’S A problem brewing. We haven’t got our heads around how long people are living for. When pension schemes were first introduced in the Fifties, the average retirement age was 66 and people were expected to live until they were 77. So you would be funding 11 years of retirement. Whereas today people hope to retire at about 61 but are living to about 82. So we’ve got half the time to fund double the life expectancy. Although it’s unpalatable, the truth is that people are going to have to retire later and later. If you are living longer, you’re going to be forced to save more and retire later. The consciousness has not quite caught on about longevity. Most people are going to find saving enough to provide them with a large enough fund is going to be difficult. Auto-enrolment is a good start, but it’s only a start. I don’t think that it has improved the quality of the schemes, even though it has widened their coverage. And a scheme that just complies with the auto-enrolment 8 per cent minimum isn’t going to cover your financial needs at all. I don’t want to be all doom and gloom. For years governments have tinkered around with pensions so that people have become petrified about putting money into vehicles they can’t control. The Budget changes mean people will engage with pensions a lot more. All this scaremongering about pensioners blowing their pensions on holidays has turned out to have been stupid criticism. The new rules treat clients as grown-ups so have come as a breath of fresh air.
IAN PRICE
DIVISIONAL DIRECTOR FOR PENSIONS, ST JAMES’S PLACE WEALTH MANAGEMENT
THIS MONTH’S Autumn Statement has raised the profile of saving for retirement, which admittedly is not the sexiest subject. Auto-enrolment is a good start but it’s not enough. What people need to realise in autoenrolment is that, even when their stepped contributions increase to 8 per cent, it still won’t be enough to fund their retirement. The mantra for financial health is simple: spend less than you earn, protect against disasters and invest wisely. However, spending less than you earn is difficult for some people. If you are self-employed, then you need to start building your pension contributions into what you charge clients. It’s an overhead that you need to factor in. One trend is for wealthy clients to sell
their houses to fund retirement. Barrett Homes is actually developing communities for those who have downsized their homes. I definitely see this as a growing trend.
BEN WESTAWAY
MANAGING DIRECTOR, JESSOP FINANCIAL PLANNING
THE ONLY way to feel secure that your money isn’t going to run out during retirement is by putting away a sum anything between 20 to 30 times what you spend each year. For most people that’s going to be difficult. But there are some simple steps you can do to shore up your retirement planning. First, put away money at an early age so that you’re going to benefit from compound interest. The simple truth is that you need to put away money each month and ensure
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your investments are low cost. And if you’re on a higher rate, make sure that you’re getting higherrate tax relief on your pension. Keep the taxman informed that you’re paying into a pension. Make sure your National Insurance payments are up-to-date. You need to have 35 years of NI contributions if you want to take full advantage of the maximum £16,000 per year state pension. The state pension is still a really good deal.
TOM McPHAIL
HEAD OF PENSIONS RESEARCH, HARGREAVES LANSDOWN
INCREASINGLY, financial planning will be channelled through the workplace. We’ve moved away from the pat-on-the-head company pension, to the individual pension plan without matching contributions, to this latest third way. While the reforms are a good thing, they haven’t entirely solved the problem of people not saving. A statutory 8 per cent will not be enough to take care of people’s requirements. The next government and the one after have to do some more work here. The starting point is that you should join a company pension scheme. There are now very few people for whom it doesn’t make senses to join a workplace pension. Think of it as a savings plan that doubles your money whatever you pay in. Even if you’re an older employee, it still makes sense to join: your investment is tax free and from the age of 55 you can take your money out. But even auto-enrolment may be out of reach for lower earners for whom every pound counts. The only people it doesn’t make sense for are those struggling with debt or putting food on the table.
Why it’s time to take a look at digital pensions J ust 6 per cent of people are on track for the retirement income they’d like or expect according to Aegon’s Second UK Readiness Report. When asked in February, people said they wanted a £35,000 income in retirement and today this figure stands at £41,000.
Expectation versus reality There’s a huge gap between people’s expectations and their financial reality as most estimate their current savings will provide them with £18,000 a year when they retire. This is despite the fact that 2014 has been a very big year for pensions as at the Budget in March, the Chancellor announced a series of reforms designed to give people more freedom over how they access their pensions and interest levels have been high ever since.
Monthly saving trends The reforms have focused on how people can access their pension and they overlook
the fact that the main factor which will determine people’s income is how much they save. Men save an average of £276 per month while women save £125; across the regions, those in Northern Ireland save an average of £83 a month, compared with £280 in London and the south east. Despite the variations, the numbers have one thing in common – 94 per cent of people are likely to be disappointed with their income when they reach retirement.
Time for change The latest government figures show 87 per cent of the population now use the internet, while 12.4 million online banking apps have been downloaded in the UK. Despite the prevalence of internet use, just 11 per cent of people manage their pension online and Aegon believes this figure needs to rise. In April this year, Aegon introduced an online service called Retiready, which allows people to save into a simple pension
and ISA. The service gives users a Retiready score which tells them whether they are on track towards their retirement goal, and if not, offers coaching tools that help them take steps to close any savings shortfall.
Get the full picture Many people have pensions from different employers, and it can be hard to remember what they’re all worth. Retiready allows people to input this information and get the full picture. Similarly, traditional pensions provide an investment update once a year, and just 21 per cent of people have checked the performance of their retirement savings in the last six months. With an online pension everyone can log on to see how their savings are performing and track their progress.
Receive an iPad when you consolidate £30,000 with Retiready Aegon believes the industry needs to offer digital pensions, and is giving people the tools to do so. Until March 31, anyone consolidating £30,000 of new money on Retiready will receive an iPad Mini 2, which will help them take charge of their savings. Terms and conditions apply. By making pensions simple and accessible, Aegon hopes to address the current situation whereby the majority can expect to fall well short of their retirement goals. www.retiready.co.uk What you’ll get back depends on several things, for example how your investments perform. You may get back less than you invested. Retiready is for customers who are happy with their own decisions, if not you may wish to seek advice. Transferring may not be the best option for you.
Business Reporter · December 2014
IndustryVIEW
8
Mergers & acquisitions
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Acquiring the smart way: Why IT must be prioritised in any M&A activity Getronics group CEO Mark Cook offers advice and discusses M&A ambitions for the year ahead
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014 has been a bumper year for technology M&A activity, but how do you manage both business and technological integration once the deal closes? In 2014 global technology M&A value and volume reached heights not seen since the dotcom bubble. This is reflective of the pace of tech innovation that we see today, making acquisition a smart option for businesses looking to quickly boost their service offerings. When we look at the movers and shakers in the European market, there is a tendency to focus on start-ups, from hubs such as Tech City, which are being acquired by larger global players. However, there are plenty of businesses on the other side of the fence, making the smart acquisitions that will futureproof their portfolio. At Getronics, we pride ourselves on being one of these acquisitive organisations. We are
82%
celebrating a history of 130 years and still looking for new companies to acquire to complement our organic growth. Acquisitions have always been a key part of Getronics’s growth strategy. Today our goals are more ambitious than ever, with sights set firmly on building Getronics into a €1billion business, through a combination of acquisition and organic growth. Looking ahead to 2015, we are hunting for more European targets with revenues ranging from €15million to €500million, and we have €300million cash set aside to fund these acquisitions via our parent company Aurelius. Through a strategic acquisition programme, Getronics has transitioned from offering a traditional portfolio to developing a next-generation offering for today’s mobile and cloud enabled businesses. The development of these “Proactive Workspace Solutions” has enabled us to expand our addressable market and equipped us for further growth. In 2015 we will remain focused on making smart acquisitions and are targeting IT services companies within UC, cloud, apps and consulting, as well as vertical players, with strong customer portfolios. Asset portfolios such as divested customers or service lines from larger players are also of interest and being pursued. Notable recent M&A landmarks in the Getronics story include our acquisition of NEC Enterprise Solutions, a move that saw us grow our UC business across four countries, and our applications development portfolio was strengthened by acquisitions of Steria Iberica and Telvent in Spain, as well as Thales in Spain and Latin America. 2014 saw us
of employees believed Getronics’ acquisition of NEC Enterprise Solutions was handled well purchase and successfully integrate T-Systems subsidiary Individual Desktop Solutions GmbH (IDS) in Germany. Following the NEC acquisition we conducted a post M&A employee survey which showed 82 per cent of employees believed it had been handled well. Of course, as a specialist providing ICT services, we are well placed to execute such a significant undertaking, and we regularly provide guidance and transformation services to clients as they negotiate M&As. Clients we have helped navigate through this process include Subsea 7’s merger with Acergy, RAC’s split from Aviva, and Alpha Flight Group’s merger with LSG Sky Chefs Europe. The advice we give to our clients often centres on the need for fast and efficient processes to deliver an effective and efficient integration. It is essential time is spent on reassuring customers and explaining the reasons and goals of the deal to staff. Outcomes may well be uncertain during the early stages, but explaining the different stages of a merger, and the timeframes involved, will maintain stability during an uncertain time. Considering the growth in technological complexity of enterprise networks, and the increasing centralisation and consolidation of IT systems, it never ceases to amaze me how many businesses continue to overlook IT when undergoing the M&A process. It is not an exaggeration to say that getting this wrong can seriously undermine any deal, yet a recent survey from Deloitte revealed less than 30 per cent of companies actively involve IT in pre-close planning during M&A. Our experience in this area has
taught us that the timeframes allocated for integration of systems are rarely sufficient and that complications regularly arise. This can lead to sub-par integration of IT architectures, a situation that can be hugely detrimental in terms of lost productivity, sales, reputational damage and impact on morale. As such, it is crucial that IT forms a core part of any M&A right from the due diligence stage. This ensures alignment, identification of any potential integration issues and a more holistic understanding of the goals of integration. Thorough preparation and clear communications channels between the business and IT mean the ICT services that end-users rely on remain fit for purpose throughout what can often be one of the most tumultuous and stressful periods in an employee’s career As we continue on our own M&A journey, we’ll be applying these same principles to our own business, while continuing to target organisations that will grow the value of our company and improve the services we provide to customers. Mark Cook is group CEO, Getronics www.getronics.com @getronics
“It never ceases to amaze me how many businesses continue to overlook IT when undergoing the M&A process” – Mark Cook, group CEO, Getronics