Protecting and Enhancing Shareholder Value through Strategic Management of Intellectual Property
Andrew Watson, Head of Legal, ipVa, UK
Preparing for Exit and Asking the Right Questions (ICT sector case study)
Do you remember 1993? Nelson Mandela has just been elected as South Africa's first black leader, the first World Trade Centre bombing took place, AC Milan team beat Barcelona 4-0 in the Champions League final and John Major was the UK's prime minister. I was a four year qualified M&A lawyer at commercial law firm Simpson Curtis in Leeds, England. I remember one particular transaction that year, selling an automotive component supplier in the North of England to its US based competitor. I remember it specifically as, in true US M&A style, the buyer outbid everyone else by some distance, then found every excuse to chip away the price or to make retentions for contingent liabilities. But in 1993 this particular acquirer used one particular tactic that worked quite beautifully. This particular American acquirer really understood environmental risk, probably because at that time the US had a regime that held directors and officers personally liable for environmental risks. And after they had drilled a few bore holes in the main operating site, once a leather mill, shook their heads, donned some white protective masks and clothing, and called for more and deeper bore holes, the price was only going to go one way. And it did. Our CEO client called it sharp tactics. The American acquirer called it fair risk apportionment. In retrospect both were probably right. In retrospect and in practice the business was bought for less than it should have been. Those in the know were able to take advantage of those that were not. One side of the transaction knew a lot more than the other.
Why is this relevant today? 14 years on I can't imagine the seller preparing for sale and not understanding the environmental risk in its main operating site. The corporate finance adviser or investment bank advising the seller will have highlighted this before the sale process is undertaken. Environmental consultancies are now common (but in 1993 there were very few around, I remember trying to find one and finding that the same US acquirers had already engaged the one I could easily identify), one environmental consultancy even obtained a London listing and is now worth close to £700m. If the seller doesn't understand environmental risk now it has only itself to blame. But in 1993 the world looked very different.
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