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A cross border mergers does not only involve 2 firms but 2 countries. In this TV show Giles Murphy explains why English law is often preferred for the contract.
I think English law is still considered to be a key factor in business transactions, and we do see scenarios where you have businesses from two countries engaging with each other, but the contact will be written under English law because the businesses trust the English courts to resolve any differences.
So there’s a great opportunity to export English law, but to do so it does require firms to have a presence in these other territories, and of course a merger is one way of achieving that.
Inside Finance will continue to look at issues around cross border mergers. Look out for more from Giles Murphy.
I think we often talk about the five Ps as being principles why mergers won’t take place.
Those come down to property, pensions and annuity arrangements, you’ve also got the people aspect of it and the culture.
There’s the profile of a firm or the brand, if you like, and how that’s going to be portrayed in the market.
And the fifth one is just the general level of profits, the comparable levels between the two firms.
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It's something for us it doesn't appear that complex.
We do it for a living but there are, I suppose... it is a skill in itself and often management teams don't have the tools to do it for themselves and so they often need to seek advice.
And we often advise other stakeholders like the company's bank for example, who may have concerns about the company's viability and about their exposure to it in terms of the loans.
So we'll often go in, either advising the board or advising the bank and we are needed because the management team or the bank don't have those skills themselves to identify, what the problems are, where they're likely to show themselves in terms of where the pinch points are and advising on what the best outcome.
Typically it will be what is the business' current financial condition, so that's primarily looking at assets and liabilities.
What is the business' market, where does it stand in that marketplace, is it a leader, is it a pawn in a big game?
Looking at the business' forecast and we often find that businesses that have financial difficulty have inadequate forecasting.
They either don't do forecasting at all or they make a very poor job of it and so if they don't know what the financial position is going to be in the future, they don't know what the pinch points are in terms of their cash, then it's very difficult for them to plan ahead.
So that's one key thing that where we add value is identifying what the future holds for the business in the short and medium and longer term by helping management to come up with some proper forecasts.
So those are the key things, what's the current financial position, what's the future financial position likely to be and if that's a position that's not viable or sustainable, then what recommendations can we make to either steer the business away from the insolvency process or to plan for a process that will maximise the outcome for stakeholders.
Often they don't spot it early enough and it's often dangerous for directors to ignore some of the warning signs.
They get into difficulties for many different reasons, they may be in a recession hit sector, they may not control their working capital facilities very well, they may have inadequate or inappropriate working capital facilities.
They may be a poor management team. There are lots and lots of different reasons why businesses can find themselves in financial difficulties.
Sometimes it's the fault of the management team and sometimes it's outside of their control.
Ultimately what causes businesses to reach the point of failure is that they run out of cash, that is the case in the vast majority of the circumstances we see.
Other causes may be, for example in the current environment where leading up to 2007, for example, we saw banks lending quite aggressively, now they may be... they have lending assets which have decreased I value. And so companies may, for example, have failed their banking covenants and that's a potential risk for failure as well.
But often it's the cash, cash running out, not being able to pay the VAT bill or the rent or the wages.
Often, as I said earlier, directors leave it too late, come to us when they have to pay the wages at the end of the week and don't have any money to do so and in those circumstances it's often very difficult for us to do anything other than advise them to commence an insolvency process.
If they come to us earlier, there are ways in which their working capital facilities can be restructured or the business can be restructured so that they can avoid an insolvency process. But the key thing is for management to spot the problems early, come and seek advice and we can help them.