Legal News & Analysis – Asia Pacific – Japan – Corporate/M&A

Recent years have seen “major” multinational companies investing in and acquiring “minor” independent ventures with increasing frequency. To take the consumer sector as just one example, recent high-profile examples include Cadbury-Kraft’s acquisition of Green & Blacks, Unilever’s purchase of Ben & Jerry’s and The Coca-Cola Company’s acquisition of Innocent. Japanese companies have also got involved with this trend with a recent example in the consumer sector being the Asahi Group’s acquisition of Cricketers’ Arms, an Australian craft beer, in April 2013. 

These transactions bring a range of opportunities and challenges for majors, whose size, power and experience can appear off-putting to smaller, independent targets. Here we set out some of the lessons we have learned through helping majors to acquire minors.

The Importance Of Establishing Trust 

For a major to ensure that it is selected at the tender process, it is important for them to create trust with the minor. It is crucial that the minor views the major as a credible and desirable entity for them to join with rather than simply as some behemoth which is going to swallow them whole! 

One way in which a major can establish trust is by putting in place a single point of contact for the minor. In our experience, selecting the right point person on the major’s deal team is a key element for a successful deal. Choosing a point person with the appropriate level of seniority is important – they need to be senior enough to be credible to the minor and have the authority to drive the process at the major but not so senior that the minor will hesitate to contact them directly.

Another way in which a major can establish trust is by guiding the minor through the (potentially unfamiliar) transaction process. This may be the minor’s first exposure to the acquisition process and they may find it daunting, e.g. addressing the due diligence requirements of the major with only a small team of people (who still have to do their day jobs). In addition, the minor’s management are likely to be heavily emotionally and personally invested in the deal, so the normal stress which goes along with any acquisition will be magnified for them. As such, there is often a real opportunity for the major to establish trust by (within limits) trying to act as a partner who guides the minor through the process (rather than an opponent who is trying to ‘win’). For example, instead of simply sending out a due diligence request list and waiting for the results to come back, the major should consider taking the time to explain the purpose behind the due diligence (i.e. to help understand the business and its value) and offer to provide support with the logistical elements of the process. 

Taking The Time To Understand Key Drivers 

It is also important for a major to take the time to understand the most important drivers for the minor, such as culture and values, ethical concerns and social responsibility. Often it is the differentiated strategy of a minor, such as an ethically focused sourcing policy, that has allowed it to gain market share. The minor may want to ensure that this strategy continues post-acquisition (whether to secure its earn-out or its legacy) and a major’s willingness to acknowledge and adhere to these specific drivers can have a significant impact on whether the deal will go through. 

A good example of deal terms dealing with preservation of culture can be seen in the acquisition of the American ice cream company, Ben & Jerry’s, by Unilever, the Anglo–Dutch multinational consumer goods company. Although under the deal terms Unilever was to control the financial and operational aspects of Ben & Jerry’s, it was enshrined that Ben & Jerry’s would have its own independent board of directors which would provide leadership for Ben & Jerry’s social mission and preserve the brand’s integrity. This kind of structure is not common but it was an important requirement for the minor in order for them to proceed with the deal. 

Equally, the major should make it clear to the minor what its non-negotiable points are (e.g. compliance with the relevant anti-bribery and corruption legislation) so that the minor is clear in advance on which areas of its operations it may need to formalize or tighten up in order to meet the requirements of the major’s codes and policies. 

If executed correctly, the acquisition of a minor by a major can bring positive results for both parties by allowing each to take advantage of the opportunities offered by the other. For a minor this is typically done by tapping into the opportunities offered by the major’s size (e.g. greater supply chain, buying/selling power, etc.). For a major the opportunity is likely to be to tap into the insights which made the minor successful in the first place (e.g. operating model, brand strategies, marketing voice, etc.).

For further information, please contact:

James Robinson, Partner, Herbert Smith Freehills
[email protected]

Graeme Preston, Partner, Herbert Smith Freehills
[email protected]

Alex Kay, Partner, Herbert Smith Freehills
[email protected]

Joseph Fisher, Herbert Smith Freehills
[email protected] 

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