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How to increase the value of your company through takeover transactions?

The seminar, that took place on 19th October in Estonian Chamber of Commerce and Industry, had a focus on using takeover transactions to increase company’s value. The seminar was organized by Investment Agency and Chamber of Commerce and Industry.

The seminar was started by moderator Indrek Uudeküll with an example of a meeting, during which the company’s owner described an opportunity that had emerged in the market due to the increase in raw material prices. Consequently, a situation has arisen where companies have a hard time making a profit due to a period of decreasing product prices. There are companies in the market whose owners are motivated to sell their companies and transaction prices are optimal in circumstances where the company is unable to generate profits.

The moderator’s opening marks were followed by presentation from Investment Agency’s managing partner Illar Kaasik, who gave the audience an overview of the purchase mandate method, describing seven steps to  achieving the goal, starting with the target selection and ending with closing the purchase-sale transaction.
As an example of takeover transactions, Kaasik pointed out AS Remeksi Keskus’ transaction, where Remeksi Keskus got itself a good owner, and AS TMB and Betonimestarit OY transaction, which may enable the company to double its turnover in 2017.

Investment Agency’s partner Sulev Raik's presentation had a focus on the valuation methods of the company and gave examples of several valuation methods calculations. A catchy thought about his presentation was that the company’s price develops during negotiation process and in different cases, it may differ from the view and goal of the counterparty of transaction. Stock price is a good basis for the negotiations. For the owner, the price is also linked to the company’s emotional value. In order to get to the transaction, the parties have to find a satisfactory solution for all parties.

Triniti law firm’s partner Tõnis Tamme shared recommendations of important nuances about contracts. Pre-contractual negotiations should be conducted in good faith, provided data must be accurate and other party should always be informed of all the facts that are of major interest to the other party in view of the purpose of the agreement.
Before the negotiations, discuss it with your team and contractor and agree on the schedule and deadline for the negotiations. Communicate with your other party regularly during the negotiations. Be sure to be realistic about the goals of the transaction. The process of drafting a contract should involve a specialist, as the practice has shown that it will both save time and eliminate later defects in the contract.

Swedbank’s project financing department’s project manager Vahur Vallistu gave an overview of aspects involved in financing takeover transactions. In order to finance purchases, the SPV structure is used (a distinct legal body through which the loan goes to the company). After the transaction, the merging termination requirement is limited to 6 months.
As for the negative aspects of the purchases, Vallistu mentioned growing loan burden, longer adaption period than expected, lack of added value, asymmetric information and problems with management, employees and the culture of the company.

Peeter Koppel, the private banking strategist of SEB, presented the audience his fun and realistic view of the current economic situation. In his presentation, he brought out the main reason behind low interest rates, that is still ongoing massive money creation in the Euro area. He sees the Euro area’s problem as the countries’ debt liabilities – as of promises that the countries have given their residents – are not sustainable and the countries just don’t have enough money to fulfill them. In a situation of decreasing money purchasing power, it is not reasonable to own a lot of money, but to invest in performance assets, which may be either stocks, real estate or in some part gold.

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Eva-Ell Paalimaa, Investment Agency communication manager