Vecta on Restructuring

Vecta Consulting

Vecta on Restructuring

Investment Banks, big Accountancy firms, Lawyers and other advisors have traditionally earned substantial fee income from their Merger & Acquisition (M&A) operations despite these activities only rarely delivering long-term value to shareholders.

The converse activity related to carveouts, spinouts, and other forms of disposal has also been a lucrative source of income.

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The drive to restucture often follows the appointment of a new Chief Executive whose performance is driven by incentives focused on growth of top-line revenue or margin.

M&A create opportunities for headline growth and/or cost savings but managements focused on growth rarely focus long enough to secure the benefits before moving on to the next big deal.

Spinouts and disposals can improve average margin and/or provide welcome cash injections but spinouts are rarely given the freedom they need to succeed and many disposals are on fire sale terms to satisfy a regulator.

Nevertheless, with ever shortening periods of tenure for Chief Executives leading to even more pressure for short-term results, restructuring will remain a popular choice.

Acquisition implies that one company is taking over the interests and resources of another, usually smaller, company with shareholders in the smaller company receving cash or shares in the larger company.

Carveout implies that a new company is being created from some established businesses of an existing company usually to bring in new investors.

Merger implies that two companies of near-equal market value merge their interests and resources to create a single entity with any imbalance corrected in the exchange rate of new for existing shares in the two contribuitng companies.

Spinout implies that a new company is being created from some interests and resources of an existing company usually to bring in new investors.

University Spinouts in which the new company is being created from some interests and resources of a University face particular commercial and cultural difficulties.

Venture implies that a new company is being created from some interests and resources of an existing company with the new entity remaining a wholly-owned subsidiary under arms' length management.

Financial re-engineering may yield short-term financial benefits to senior management and advisers but rarely delivers long-term value for shareholders.

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More info from: Frank.Morris@vecta5.com

Vecta Consulting Limited, Mulberry House, 2 The Spinney,
Cottenham, CAMBRIDGE, CB24 8RN
Tel: +44 (0) 1954 250222, Fax: +44 (0) 1954 252333

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