Event-Driven Transactions Explained: Reclaiming Your IFA Firm

This year, NatWest has hit the headlines with the significant purchase of £1bn buyback shares in a bid to reduce the government's stake in the bank, with the hope of eventually returning it to private ownership by 2026. This sale means the government has now recouped more than £20bn of its £46bn bailout during the 2008 global financial crisis (GFC).

Despite now being in a stable and strong phase of growth, the bank was once part of a significant event-driven transaction to help keep it afloat. Whilst this example involved the unprecedented purchase of shares in their billions, event-driven transactions are still applicable in lesser denominations and can actually help business owners and investors capitalise on growth opportunities.

 

What is an Event-Driven Transaction?

An event-driven transaction refers to the financial activity that occurs in response to a significant, often transformative, external event that directly affects a company’s operations or strategy. It is typically outside of the control of the controlling parties and creates a need for a major capital outlay or financial restructuring.

Unlike the example above, its purpose is typically to profit from consequential events to create increased business value, whilst adapting to new market conditions. These transactions are often aimed at improving shareholder value, increasing profitability or achieving strategic growth goals, for example, market expansion.

Event-driven transactions capitalise on opportunities and mitigate risk by assisting controlling parties. Examples of this include a major shareholder retiring and wishing to cash out their equity, prompting a buyout, or a business owner looking to undergo the buyback of shares from shareholders they operate under. Both scenarios provide opportunities for investors to acquire shares at an attractive valuation, with the potential for significant long-term growth. Wider examples of event-driven transactions include:

• Mergers and acquisitions
• Management buy-outs
• Employee ownership trusts
• And restructuring

 

Event-Driven Transaction Considerations

Characteristically, event-driven transactions are triggered by time-sensitive and complex events. All have a strategic purpose as they aim to achieve specific goals, such as improving operational efficiency or unlocking shareholder value.

Although potentially lucrative, event-driven transactions face several obstacles that may complicate execution. Challenges can arise from a variety of impacting variables including financial, operational and market-related factors. Typical obstacles to consider include:

• Market Volatility: Macroeconomic factors can affect the viability of a transaction by presenting unsavoury conditions during the buyback process. This can affect share value by way of reduced valuation or reluctance from stakeholders to proceed
• Due Diligence Challenges: Failure to identify significant risks during due diligence, for example, hidden liabilities, contractual obligations or compliance breaches may result in post-transaction disputes, unforeseen costs, or even reputational damage
• Valuation and Exit Discrepancies: Overvaluation or undervaluation of a company ahead of additional share purchase may lead to the derailment of negotiation and unfavourable terms ahead of sale
• Reputation and Brand Risk: Although not necessarily a front-of-mind risk for purchasers to consider, public perception or media scrutiny can impact the reputation of the entities or shareholders involved, especially in hostile takeovers. Poor optics may result in the loss of client trust or brand equity, affecting company value in the long-term
• Financial Constraints: A lack of sufficient funding or the inability to secure enough finance can halt the progression of a buyback transaction. However, Enness Global’s talented corporate finance team are on hand to help

 

Enness: Structuring Capital for IFA Buybacks

A recent case study saw Enness Global’s Corporate Finance Associate, Jack Dowling, assist a client by sourcing capital to buy back the shares owned by the network they were part of. The client was an established IFA entrepreneur, having built up a healthy book of business from years of successful trading. Once they had served notice and progressed their pipeline ahead of the independent transition, the client approached Enness Global for help as they did not want to use their equity or savings to buy out the shareholder network. Instead, wanting to raise debt funding.

In said example, the IFA instructed the services of Jack to source a competitively priced debt facility in order to retain liquidity and manage the financial burden of leaving the network. The buyback was rewarding; the client successfully separated away from the network, reduced their operating costs and helped fund their transition towards independence in managing client portfolios.

 

Leveraging Debt as a Financial Tool for Corporate Independence

Although financing an event-driven transaction may initially present itself as overwhelming, opting to appoint an established financial partner to help obtain structured debt is simpler than you think. Enness Global has seen more established private companies, SME business owners and successful entrepreneurs come to the realisation that depleting their capital reserves is not necessary for event-driven transactions, and instead have opted to leverage funding more effectively during the buy-out process by utilising debt to their advantage.

Mirroring the aforementioned case study, Enness Global has seen an increase in IFAs endorsing the use of debt to not only buy out their position in the network but also customise their finance accordingly. Using debt strategically can assist with liquidity management and optimise cost efficiencies by mitigating any network costs.

“Debt is arguably the perfect tool for buying back shares” comments Jack. “During the network separation process, using debt capital to finance the purchase ensures none of the shares are diluted. Not only are below market value shares of lower risk to controlling parties, but the undervaluation is cyclical meaning the shares have the potential to attain their intrinsic value in the future, aligning to future business growth.”

 

Strategic Financing in Event-Driven Transactions

For shareholders and IFAs exploring how to fund event-driven transactions, depleting capital reserves is not the only option. Strategically borrowing debt can help clients gain independence from networks and fund the purchase of additional controlling shares. Not only will this enhance shareholder value, but by utilising borrowed capital business owners can retain corporate liquidity, increase profitability and contribute to long-term growth.

Working with a partner like Enness Global can help navigate these complex transactions with flexibility and strategic support. To get in touch with Jack and the wider corporate finance team, get in touch today.  

 

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