I am worried that our bank has lost confidence in our management. What is an accelerated mergers and acquisitions process (AMA)?
If you are a director, or board of directors of a company borrowing money from a bank, funder, invoice discounter or investors, they will usually require regular financial information and accounts. If the management information process is poor or is showing bad numbers and a possible cashflow hole this leads to a loss of confidence in the company’s ability to trade. The bank may lose confidence in the ability of the board to turn the situation around, so often the funder will seek outside help.
Usually an insolvency advisor from a large accountancy practice, insolvency practitioner or group of practitioners will be asked to meet the directors, agree a plan to “manage” the situation for the funders and the following steps will often be taken:
- The insolvency practice will generally work with directors to control cash flow and payments to all the non-essential creditors will be stopped. This will probably include payments for wages, insurances, fuel cards for example and other critical suppliers. In addition, they will ask the directors to chase in debtor payments as fast as possible. The aim being to reduce bank debt.
- The insolvency practitioner will instruct a valuer to conduct a valuation process on the assets of the business and its goodwill, in the event of a sale to a third party.
- An information memorandum (IM) will be constructed with the valuation informing the proposed sale process. This IM will then be used as a sales tool to try to sell the business to interested parties.
- The insolvency practitioner will then market the business through sales agents and market the business and assets to national databases of interested buyers. The potential buyer will have to sign a confidentiality agreement (NDA) before receiving the information memorandum. They will get only limited financial information at the outset.
- Usually there is a short window of time to get offers in – hence “accelerated” M&A.
- Nominally the directors will still be in control of the company, normally, but creditor pressure will build, management will get worried about losing jobs, employees will hear rumours as to why “ABCX accountants” are in the office every day. This will be uncomfortable for directors.
- The directors will also be expected to meet the shortlisted purchasers and explain more about the business. In essence acting as salesmen/women. There is no guarantee they will have a job, post any sale event.
- Typically, the process then culminates in the sale of the business, assets and goodwill to a third party. This will be enabled by the use of a prepack administration process .Typically in advance of this, the directors will be asked to appoint administrators to facilitate the sales process.
- When the purchase is completed the company is in administration – but it is not trading anymore and the trading entity (or entities) has been sold. Usually the directors will leave the business, unless they are part of the purchasing company.
- As usual after an administration, investors/shareholders will lose all of their investment, creditors are likely to receive nil to a very small dividend, some jobs tend to be saved and landlords may have to re-let any premises to the new company. It is a legal requirement that the administration process will lead to a better outcome for creditors as a whole.
“So how do we stop an AMA process starting in the first place”? The key is to be in control.
The directors should have up-to-date financial management information (MI), have a business plan and know how they are going to trade through the crisis of cashflow or lost orders.
If the MI or plans are not good enough, it may be necessary to obtain an independent business review, (IBR). Our turnaround team at KSA Group can produce an independent business review looking at all of the turnaround and insolvency options in detail. This will be backed up by a detailed and high-quality business modelling process using our expert modelling team.
Generally, an IBR is prepared at the request of the lender. Why not get your IBR prepared and be ready to ‘go into bat’ with the funders, showing them you have good understanding of the business, the possible recovery options and their outcomes as lenders? Then we can help with a strong business plan and turnaround plan to drive it forward?
What if the bank still wants us to go down the AMA process?
KSA and its sister companies can introduce new lenders and funders. With a broken bank relationship, it is often best to find new capital to take the existing lenders out of the equation.
New funders will be able to access the company’s independent business review and make informed decisions on the management ability and capability of delivering a turnaround plan. Get ahead of any AMA threat and get control of your business and KNOW your options to deal with broken bank or lending relationships.