Category: corporate finance

Mergers: Dating Before Marriage

Posted on by admin in Capital, corporate finance, Corporate Governance, International Investment, mergers and acquisitions, transaction advisory

Before a merger of companies actually takes place, while negotiations are ongoing, the companies need to review their operational systems and corporate culture. This is because each corporate body has their peculiar system of operations, values, trade culture and work ethics. The concept of dating before marriage consists of further steps taken after due diligence investigation in order to determine cultural compatibility. It is the stage where the companies enter into a compromise using the information gathered during the due diligence investigation in order to facilitate a successful merger.

Numerous studies have explored the key drivers for merger successes and failures. The overwhelming evidence is that over 70% of the time, mergers do not create synergies and shareholders of both companies involved do not see gains in shareholder value due to cultural incompatibility. The difficulty in blending two organisations lies in the fact that each group tends to see the world through its own biased cultural filters, popularly referred to as “familiarity blindness” or “cultural trance”. Several authors emphasize the value of “soft” due diligence audits, which focus on human resources and identification of cultural difference and its impact on the success of the merger. Some authors have also suggested that certain individuals are critical to the success of the merger and as such, should be identified and included in the merger process.
To avoid merger failures a diagnostic process has to be developed that allows a company to test the impact of a proposed business initiative or venture on those people most affected by it, to identify why it may fail and to establish precisely what has got to be done to make it a success. This tool can be applied to a proposed merger as part of the HR due diligence process, to identify and assess the cultural issues that will be encountered. The tool should be sufficiently flexible and scalable to be adapted, modified or enhanced to meet specific requirements.

NETWORKING: AN ESSENTIAL SKILL IN 21ST CENTURY BUSINESS

Posted on by admin in Capital, corporate finance, Corporate Governance, International Investment, Uncategorized

I have been reading this fantastic book authored by Mr. Ferdinand Ibezim of Selling Skills Support Services Ltd. The book was loaned to me by one of our consultants and I dare say that it is one of the best books I have read in a long time.

Networking involves creating opportunities through meeting people and building strong relationships. These relationships grow and deepen over time, leading to other contacts, relationships and opportunities.

As I read through this book, I reflected on the opportunities that have come my way through Business and social Networking. I am a firm believer that business networking brings with it the added advantage of recommendation and personal introduction, which are always very helpful for developing business opportunities.

Creating a structured plan and process is vital to any successful venture, whether

launching a new business, orchestrating an organizational turnaround or managing your job search networking campaign. It is critical that you clearly identify your network contacts, develop a personalized networking plan and build an administrative process to manage that information.

To Download a Printable Networking Action Plan Click here ===> NETWORKING ACTION PLAN

A person who uses a network of professional or social contacts to further their career always prioritises helping and giving to others ahead of taking and receiving for themselves.

You must give in order to receive. Be helpful to others and you will be helped in return. Networks of people are highly complex – often it is not possible to see exactly how and why they are working for you, So you must trust that goodness is rewarded, even if the process is hidden and the effect takes a while.

Estate Planning: Preparing for the Future

Posted on by admin in Capital, Compliance, corporate finance, estate planning, investment advisory, Personal Finance, real estate, succession, Uncategorized, wills

Thomas is a sound engineer, he makes a reasonably good income from his job with a prominent record label and he enjoys the benefits that comes from working with some of the biggest stars in the music industry.  Thomas is married to Mimi and they have 4 beautiful kids Kene (15), Ada(13), Chika (10) and Thomas Jnr (8). The kids mean the world to him. Life is good for Thomas and his family, they travel regularly and have properties in choice areas within Lagos, Abuja and Port Harcourt.

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A few months ago, Thomas starts from sleep with severe chest pains, the pain is so intense that he can barely speak. Luckily his wife is able to take him to the hospital where he gets emergency treatment for a heart attack. Whilst he is recovering from his surgery, his wife informs him that his relatives had approached her and requested for a list of all his assets and properties, just in case that he passed away after the heart attack. She also informs him that his cousin attempted to take away one of his motor vehicles in her absence, and was only prevented by the efforts of the security man.

Thomas is incensed, however he is unable to leave his sick bed and even if he was, his doctor would not permit him to leave for fear that the heart attack would happen again. He instructs his wife to call his lawyers. Whilst she is away, he lies back and wonders what could have happened if he had passed away a a result of the heart attack- what would have happened to his family? Who would have provided for his family? He realises that his wife and children would have been thrown into the cold by his extended family and there would have been little remedy for them because he did not have a Will.

When his Lawyer arrives, Thomas asks for advice on the ways in which he can plan the distribution of his assets, so as to provide for his family in the event of his sudden demise and to ensure that his assets would be properly distributed and administered for the benefit of his wife and children. His Lawyer proceeds to explain the elements and benefits of an Estate Plan.

An Estate plan refers to the collection of documents which enables an individual manage his current and future assets in preparation for their death or incapacitation.  Many people mistakenly believe that estate planning is only necessary for the wealthy. In reality, a basic estate plan is essential for everyone, regardless of income or net worth, because we all want to minimize confusion, unnecessary costs, and stress for loved ones after our death.

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Without proper preparation and documentation, assets like houses, retirement plans and savings accounts can end up in limbo for years, sometimes requiring expensive legal assistance to straighten matters out.

Some of the major estate planning tasks include:

  •  Creating a will:

    Wills are easy to create, but they require the distribution of assets to go through probate. Probate is a legal process that involves:

    • Validating or proving a deceased person’s will; 
    • Identifying, inventorying, and appraising the deceased person’s property
    • Paying debts and taxes; 
    • And ultimately distributing the remaining property as the will directs. 

    The probate process often requires a lot of technical paperwork and court appearances, and the resulting legal and court fees are paid from estate property, thus reducing the amount that’s passed on to heirs.

  • Limiting estate taxes by creating Trusts and setting up trust accounts in the name of beneficiaries:A trust can be more expensive to set up and requires professional assistance, but it provides benefits that a will cannot. First, when they’re structured properly, trusts will help avoid guardianship if you become incapacitated. Furthermore,  A will only works after you’ve died; a trust, by contrast, works all the time, including periods of incapacity before death. Trusts usually avoid probate, which helps beneficiaries gain access to assets more quickly as well as save time and court fees. Depending on how it’s structured, a trust may also reduce estate taxes owed and can protect an estate from heirs’ creditors.

  • Establishing a guardian for living dependents:If you fail to appoint guardians in your Will and your children are orphaned before they reach 18, the courts will appoint guardians instead, but they won’t necessarily choose the people that you would have preferred to take care of your children. If when you pass away the other parent of your children survives, the surviving parent will normally continue to have full responsibility for the children. However, if neither parent survives (as in some road accidents) then the guardians you have appointed will take on the responsibility for your children. By appointing guardians you can ensure that your children are looked after by the people that you have chosen as the best people for the job.
  • Naming an executor of the estate to oversee the terms of the will:
  • The executor is responsible for making sure all assets in the will are accounted for, along with transferring these assets to the correct party. He or she also needs to ensure that all the debts of the deceased are paid off, including any taxes. The executor is legally obligated to meet the wishes of the deceased and act in the interest of the deceased. The executor can be almost anyone but is usually a lawyer, accountant or family member, with the only restriction being that he or she must be over the age of 18
  • Creating and updating beneficiaries on plans such as life insurance:
  • Setting up Funeral Arrangements:Funerals can also be paid for using assets from the deceased’s estate; however, the funds may not be available directly, so someone else will have to pay the immediate costs. The arranger of the funeral can pay the expenses and later be reimbursed in full once the estate is settled. Representatives like trust officers and estate attorneys can also pay funeral expenses from funds held in trust or from other available accounts, and later be refunded by the estate.
  • Establishing annual gifting to reduce the taxable estate:
  • Setting up durable power of attorney (POA) to direct other assets and investments

EXECUTION OF BUSINESS IDEAS

Posted on by admin in Capital, corporate finance, Development, International Investment, investment advisory, Personal Finance, transaction advisory, Uncategorized

We all get business or project ideas from time to time, some of these ideas flit around within our minds like moths seeking the light, others run around like puppies seeking expression, and others still pound insistently upon the walls of our minds, giving us no respite until they find expression through our actions.

However, before you go hell for leather chasing each business idea which comes to mind, we have outlined some steps which may aid you in the successful and sustainable executions of your ideas. These tips will also work for the business manager who needs to implement some strategic or operational business objective, as well as the project or team leader tasked with delivering a stated objective.

  • ASSIGN PROJECT LEADERS WHO WILL DRIVE EXECUTION: This especially applies to medium to large businesses, but may be applicable to small businesses as well. Every idea needs to have a key person who is responsible for interacting with stakeholders and driving the execution of the idea and delivering strategic, operational and tactical objectives to project stakeholders in terms with parameters laid down by project stakeholders. That person needs to be empowered to implement strategies required to deliver tasks that will move an idea forward.
  • IDENTIFY AND EVALUATE AVAILABLE AND DESIRED RESOURCES: Capital is an indispensable business input, and to many entrepreneurs, it appears to be sole input required to build a business. However, knowledge base, market intelligence, proper product design and the right team are important aspects of the execution process. The business owner/manager/project leader should evaluate which resources are required to execute their strategic, tactical and operational objectives and identify whether they possess those resources in the appropriate quantities required to achieve their stated objectives.
  • IDENTIFY AND EVALUATE CHALLENGES: The Business owner/ manager/ project leader should strive to identify and evaluate external obstacles (Macro–economic issues, market dynamics, and government regulations) that may impede the successful implementation of the idea. They should also evaluate their internal resources and capacity (financial, operational, legal) to achieve their  objectives  and mitigate or obviate any detected weaknesses during the planning and implementation process. That will ensure that the idea gets properly executed in the face of foreseen or unforeseen resistance.
  • SET SPECIFIC TIMELINES: The problem with many new ventures is that they have to fit in among team members existing job responsibilities. Consequently, procrastination  project delays may arise as more pressing issues and challenges arise within and outside the project environment. To create time pressure for the new venture, the business owner/manager/project leader should define specific deadlines by which actions and tasks have to be executed and supervise the delivery of team objectives in terms of the laid down timelines. In laying down these timelines, the team leader should consider the critical path required to achieve defined objectives at the highest quality, with negative impact on team members or team resources.
  • CREATE A MASTERMIND NETWORK AND BRAINSTORM: As you go about your daily life and business activities, identify and cultivate individuals who possess the requisite knowledge base, technical skills, energy, edge, and entrepreneurial experience that you will need to effectively and efficiently deliver your present and future objectives to work with you and have fun while doing it, as the saying goes, no man is an Island.Your mastermind network can as an advisory board to your business or project.
  • BELIEVE IN YOURSELF: Informed Self-belief is an essential requirement for any business owner/manager or project leader. This requires gathering information sufficient to understand the key elements of the project, the project drivers, the project environment, your internal resources, strengths and weaknesses and how your available and obtainable resources will enable you successfully achieve your objectives.  Provision should also be made for the consequences of your decisions or situations where events that are uncontrollable or unforeseen negatively affect your expected outcomes. Anytime you assume the responsibility to create something that had not existed before an opportunity to become a reality, you become accountable for your actions.
  • ALWAYS HAVE A PLAN ‘B‘ AND BE READY TO START ALL OVER: Although we would always want to believe that all will be well, life sometimes happens. Sometimes, despite your best plans and efforts, your expected may not materialise. In such a situation, you may either take a breather, evaluate your mistakes and do it better, or where the cause of the failure was systemic (e.g a regulatory change, irreversible market evolutions, change in consumer tastes) it may be advisable to know when to cut your losses and jump ship or change your product or marketing strategy to fit the changing market.

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CAN THE ODIOUS DEBT PRINCIPLE BE APPLIED TO LEGACY DEBTS IN MERGERS AND ACQUISITIONS

Posted on by admin in corporate finance, International Investment, Personal Finance

 

Legacy debts are one of the hidden costs which bedevil companies in transitional situations (mergers, acquisitions, business transitions). Legacy debts refer to debt obligations incurred by a target company and its predecessors in title, which are inherited by the acquiring company. These debts are usually difficult to identify during transactional due diligence, as they are sometimes concealed within obscure transaction documentation.

The concept of odious debt refers to the particular set of equitable considerations that have often been raised to adjust or sever debt obligations in the context of political transitions based on the purported odiousness of the previous regime and the notion that the debt is incurred did not benefit, or was used to repress the objects for which the loan is taken.

It should be noted that the legal obligation to repay a debt has never been accepted as absolute and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness” which may be invoked in order to invalidate debt obligations. In determining whether to assume the legacy debt, regard is often had to the purpose for which the debt was incurred. If the legacy debt was incurred for an illegal purpose or a purpose which is profligate or inconsistent with the objects of the company, the acquiring company may apply to the court to adjust or sever the legal obligations arising from the transaction.

Debts that may be viewed within this spectrum include debts undertaken by a board in order to prevent a takeover attempt, debts undertaken to subsidize personal expenses of managerial staff, as well as debts incurred to finance criminal activities. A problem may however arise where the purported odious debt conferred some tangible benefit in whole or in part upon the corporate entity and its successors in title. This implies balancing the concept of sanctity of contract against the reality of protecting the funds of the company from embezzlement or wastage.

Generally speaking, when corporate succession occurs, whether through dismemberment, acquisition or some other change that alters the nature of the corporate entity itself, legal obligations are not thought to be automatically transferred to the new corporate entity because as a formal matter the identity of the corporate entity has changed and the new company has not expressed its will to be bound by the debts incurred by its predecessors. The question thus arises whether to commence business on a clean slate, thereby reducing the incentives of companies to enter binding contracts or enshrine financial stability by inheriting the debts incurred prior to its existence.

There is a rich case law concerning the limits of contractual freedom, whereby contractual obligations have been found unenforceable or partly enforceable without substantially preventing the growth of sophisticated financial markets. Some scholars are of the view that contracts made by a predecessor that are of no advantage to the company should not be honoured, in particular where the funds have been applied to purposes that are harmful to the company. Other authors suggest that the total repudiation of the debt would cause substantial injustice and in order to equitably invoke this principle the debtor would have to partially repay the debt. This position places emphasis on equitable arguments to do what is right and just in the circumstances.

In general, the law of contract provides ample room for a judge or adjudicator to balance the equities in a case involving illegal or immoral behavior of one or more parties to the transaction. The treatment of odious debt should therefore be based on the equitable considerations underlying the transaction and the after effects of the legacy debt on the affairs of the company. Consequently, a legacy debt which enhances the book value of the firm over the long term is easier inherited than a legacy debt which leads to long run reduction on the book value of the firm. In the event of the former, the principle of promissory estoppels may apply to prevent the successor company from repudiating the debt.

Milton and Cross offers investment advisory and due diligence services to individual and corporate organizations engaging in merger and acquisitions as well as related transactions. We may be contacted directly on +2348036258312, or by email on : miltoncrosslexng@gmail.com.

Posted on by admin in Compliance, corporate finance, International Investment, Personal Finance

STOCK BUYBACKS

 

The paramount objective of investment is profit, and the imperative for return on investment is no more relevant than when you have invested in a company and the company has declared a profit. The management of the company is however faced with the vexing question of determining whether to apply the profits towards issuing dividends to shareholders or to embark upon a stock buyback programme. Companies which retain substantial amounts of cash on their balance sheet make attractive targets for takeover, especially as they imply that the management of the company are incapable of effectively applying the retained earnings towards the generation of further profits for the company.

 

When a company repurchases its shares, it reduces the number of shares held by the public, thereby increasing the company’s subsequent earnings per share. This in turn increases the value of the outstanding shares. This option best obtains where the shares of the company are undervalued and shareholders are relatively unsophisticated. The repurchased shares may later be resold to new investors at a substantial profit to the company.

 

The repurchase programme has the added advantage of making the outstanding shares more expensive, reducing the attractiveness of the company as a takeover target. Moreover, buybacks reduce the assets on the balance sheet, thus increasing the company’s return on assets and return on equity without any substantial increase in the performance of the company. This cosmetic effect often impresses positively on the investment community, especially investment analysts and retail investors.

 

A further benefit of stock buybacks is the reduction of shareholder tax liability, making it a tax efficient form of earnings distribution. When a company makes a profit, it is statutorily obligated to pay Companies Income Tax on its profits before dividends are issued. Upon the issuance of dividends, the shareholder pays the government a withholding tax, meaning that the profits have been subjected to double taxation. Stock buybacks thus rewards the shareholder financially, without the tax liabilities inherent in dividend issuance.

 

Typically, buybacks are carried out in one of two ways:

 

  1. Tender Offer:

 

the company may present the company with an offer to submit, or tender, a portion or all of their shares within a certain time frame. The tender offer will stipulate both the company is looking to repurchase and price they are willing to pay, which is almost always at a premium to the market price of the shares. Shareholders who accept the offer will state the number of shares they intend to tender and the price which they are willing to accept. Once the company has received all the offers, it will find the right mix to buy the right mix to buy the shares at the lowest cost.

 

A variant of the tender offer is the fixed price tender offer. Whereby the company stipulates a price at which it is willing to repurchase the shares and gives the shareholders the option to accept the offer as stated. This is the method currently utilized by Unilever Plc in its recently concluded tender offer.

 

  1. Open Market Buyback:

 

This involves the purchase of the shares by the company on the open market in a manner similar to open market transactions commonly undertaken by any other party. It is important to note, however that the Investment and Securities Act (2012) requires companies to announce the commencement of a stock buyback scheme and the announcement of a buyback commonly results in a rise in the share price of the company.

There is no definite answer to the question as to whether stock buybacks are a beneficial option, as this depends upon the circumstances surrounding the tender offer.

 

Milton and Cross offers investment advisory and due diligence services to individual and corporate shareholders who require legal advice on the issuance or acceptance of tender offers and the elements of share repurchase transactions generally. We may be contacted directly on +2348036258312, or by email on : miltoncrosslexng@gmail.com