What is an accelerated mergers and acquisitions process (AMA)?
Is the company's bank threatening to engage an insolvency firm to manage an AMA process?
When borrowing money to grow and develop businesses usually the debt element is secured with fixed and floating charges securities, over the company’s assets. Usually at a material level of borrowing, the bank, funder, invoice discounter or investors will require regular financial information and accounts. This is called MI or management information.
If the MI process is poor or is indicating a serious problem ahead such a possible cashflow gap, often this leads to a loss of confidence in the company’s ability to trade and the expectation becomes that more borrowing is required to survive. Most banks do not like putting “good money after bad”!
The bank may lose confidence in the management’s’ ability to turn the situation around, so often the funder will seek outside help to learn more about the actual up to date position and ask the advisor to look to recover their lending position. Often a corporate finance advisor and an insolvency advisor from a large accountancy practice, insolvency practitioner or group of practitioners will be asked to meet management to agree a plan to “manage” the situation for the funders. They‘re known as AMA Advisors.
The AMA Advisors will generally work with directors to control cash flow and payments to all non-essential recipients will be stopped. Payments will be made for wages, insurances, fuel cards for example and other critical suppliers. In addition, they will ask the directors or factoring company to chase in debtor payments as fast as possible. The aim being to reduce the lenders exposure, as quickly as possible, to a level that may lead to better recovery post administration. If the assets are possibly only worth £500,000 and the debt is £800,000 you can see why the lender would want to reduce the borrowing quickly?
An information memorandum (IM) will be constructed with an expert agent's valuation informing the proposed sale process, this IM will then be used as a sales tool to try to sell the business to interested parties. The advisors will then market the business through the sales agents who may have previously valued the assets for the bank and the AMA Advisors. The AMA Advisors will always instruct a valuer to conduct a valuation process on the assets of the business and its goodwill, in the event of a sale to a third party.
The AMA Advisors will also market the business and assets to their own national databases of interested buyers. The potential buyer will have to sign a non-disclosure agreement (NDA) before receiving the information memorandum. They will get only limited financial information at the outset.
The reason it is called an accelerated process is that offers are usually invited within 5-10 days at most. So, there is a short window of time to get offers in. Meanwhile the company is not paying suppliers.
Usually the directors will still be in “control” of the company on a day to day basis but will have their directors’ powers severely constrained. There is always a risk of shadow directorship for the AMA Advisors so they will be careful in how control is divided. By not paying for supplies and services, creditor pressure will build, management will get worried about losing jobs, employees will hear rumours as to why AMA Advisors are in the office every day. This will soon become uncomfortable for directors who may even have to meet prospective buyers to “show them around”.
After 1-3 weeks the AMA process results in a sale of the business, assets and goodwill to a third party. This will be enabled by the use of a prepack administration to facilitate the sales process. When the purchase is completed the company is in administration (see www.companyrescue.co.uk for more great insolvency guides) – but does not trade, after repayment of secured creditors the company will go into liquidation.
If you want to avoid this awful process for directors get your advisors in place NOW to provide a review of the business, help you prepare a plan, learn about ALL insolvency options and get new funders lined up to take out the bank before they require an AMA Process.
How do I stop an AMA process starting in the first place?
The directors should always have up-to-date financial management information, (MI) and have a business plan and know how they are going to trade through the crisis of cashflow or lost orders. If you don’t get help for this now from Cheswick.
If the MI or plans are not good enough, it may be necessary to obtain an independent business review, (IBR). Our turnaround team at KSA Group can produce an independent business review looking at all of the turnaround and insolvency options in detail. This will be backed up by a detailed and high-quality business modelling process using our expert modelling team.
The big difference if an independent IBR is requested by the company would be that the work is done for the company not on demand of the bank. Generally, an IBR is prepared by request of the lender. Why not get your IBR prepared and be ready to ‘go into bat’ with the funders, showing them you have good understanding of the business, you do understand the possible recovery options and their outcomes as lenders? Then we can help with a strong business plan and turnaround plan to drive it forward?
Acting for YOU the directors and owners of the business Cheswick and/or the team at KSA Group can produce an independent business review looking at all of the turnaround, insolvency and recovery options in detail. Call now for initial advice 020 7416 6677.
What if the bank is already demanding an AMA process?
Cheswick can very quickly introduce new lenders and funders who can often lift the bank out quickly. With a broken bank relationship, it is often best to find new capital to take the existing lenders out of the equation, they will of course be happy to get the money back and avoid a forced sale with administrators. New independent funders will be able to understand the plan after reading an independent business review and make decisions on the management’s ability and capability of delivering a turnaround plan.
As always, ACT NOW before the bank takes control.