Merchant banks and corporate acquisitions
The aim of this dissertation is to provide a comprehensive analysis of how British merchant banks organise and approach contested bids within the institutional framework of the City. To this end, a number of exploratory hypotheses were derived from a pilot study with five merchant banks in the City as well as discussions with the project supervisor. Interviews were then carried out with 30 leading UK merchant banks belonging to either the Accepting or Issuing houses associations regarding their role, organisational structure, approaches to bidding and defensive issues related to contested bids. The main perceptions and empirical findings from this major survey are then compared with results to analysis of 30 case studies spanning the 1979-81 period (supported by analysis of another 10 cases with respect to some issues) and the results are then discussed and analysed in chapters 8 and 9. To obtain an overview of how self regulation prescribes bid behaviour and practices, interviews were also held with various City bodies. Volume 1 of this dissertation is divided into 5 parts. Part I outlines the research objectives, methodology and literature survey. Part II then examines the results of a survey of opinion of merchant bankers. In Part III, main results of the literature survey and merchant banking field work are compared with evidence derived from the case studies. Important research findings pertaining to organisational structure of leading UK merchant banks, approaches to strategies and related issues are then identified and highlighted. Contemporary takeover issues which became apparent during this research project are then analysed and possible reforms suggested (Part IV). The final section i.e., Part V, considers some for corporate advisory work relating to takeovers in the 1980s. In the discussion, details of 40 case studies are used to illustrate the main trends. Volume 2, which is not to be generally available to readers gives a cross section of'transcripts of the interviews held with more than 90 merchant bankers, stockbrokers, takeover specialists, American investment bankers, merchant banking analysts, authors, foreign were chant bankers, officials of self-regulatory bodies as well as relevant financial and non-financial data of the merchant banks interviewed during this survey, Findings of this study are numerous and it has illustrated the fact that UK merchant banks approached their takeover assignments through team work with a minimum of 2, a favored norm of 3 and the maximum team size is dependent on the size, time factor and complexity of the transaction itself. Their approach to contested bids which are invariably multi-disciplinary and complicated should not be viewed purely from the financial perspective alone. In both bidding and defending capacities, the merchant subscribe to the hypotheses that while there are general financial and non-financial principles guiding their approaches,flexibility and creativity are essential. Although the bidder has more control over timing in the takeover Did, however, the findings of this survey have shown that in a number of cases, this factor may not always favour the buyer because of the emergence of rival bidders. Moreover timing is but one element of a bidding/offensive strategy. In essence, the defensive posture is necessarily a response appropriate to the offensive strategy. The share ownership structure of the defending company plays a crucial role in the final outcome of the bid. Generally, the merchant banks perceive that it is relatively easier to defend a client when the ownership is spread amongst the small investors who are thought to be more loyal to their boards. This is particularly important, for the main defensive thrust is often an appeal to shareholders' loyalty. This is but one aspect of defensive strategies for, although the literature of corporate finance tends to dwell on. only a few defensive strategies, this study finds that their range is wide. Another important finding was the fact that UK stockbrokers (as agents) work very closely with the merchant banks ('as principals) in advising on contested bids. The former are normally consulted for their market expertise. One of the leading stockbroking firms interviewed served 8 of the 17 ACH (Accepting Houses Committee) members. Owing to this special relationship between these two types of financial institutions and possibly their lack of financial power comparable to that of the merchant banks, the stockbrokers are generally constrained from acting as prinicpal advisors in takeover situations. However, with the impending structural changes in the stockbroking business in the mid 1980s, there is a possibility that either the merchant bank or stockbroking firm assuming dual capacity. Finally, UK merchant banks in the 1980s will be characterised by a trend towards conglomeracy and the development of fee-based international merchant banking activities especially in the USA and. the Asia/Pacific regions in view of the constriction and competition in domestic corporate financial advisory activities.