International reach and local knowledge are both essential when advising on complex multi-jurisdictional transactions, says RSM corporate finance partner Steve Hubbard.
What was the deal?
It was the sale of Heatmiser to FTSE 250-listed IMI for £110m, which completed in December 2022. There was an earn-out of up to £8m. Heatmiser designs and manufactures standard and custom-designed smart thermostats and was founded as an electrical contractor in 1968 by Gordon Kay. His son and daughter, Martyn and Sarah Kay, had taken over management of the business. The transaction involved three jurisdictions: Heatmiser is based in Blackburn, while its manufacturing facility is in China and there were shareholders there, too; the IMI transaction team is based in Switzerland. The global nature of this deal significantly increased the level of complexity. We needed expert local knowledge in each region, particularly around the tax legislation for individuals and companies.
What was the strategy?
IMI’s vision is to engage with new technologies that provide innovative, safe, clean, efficient engineering solutions. Its long-term growth plan is to scale these energy-efficient innovative products across Europe. Being a leading manufacturer of smart controls for radiant systems, Heatmiser is perfectly positioned to play a role in the global drive towards energy efficiency. That’s what made it such an attractive addition to IMI’s portfolio.
What were the timescales?
Heatmiser and IMI held initial discussions in December 2021 after IMI expressed an interest in buying the business. We were then introduced to the process, which started in March 2022. Exclusivity was granted to IMI in May that year, contracts were exchanged in November and the deal completed in December 2022.
Who were the advisers?
In the UK, our M&A team advised Heatmiser throughout the transaction process. We led negotiations, provided due diligence support and assisted with commercial structuring and documentation. Our tax team advised on family estate planning and corporate tax structuring – this required a joined-up approach on corporate and private client tax advisory across multiple jurisdictions.
In China, an RSM team advised Heatmiser and the local Chinese shareholders on the sale, which included a third-party valuation and a wholesale transfer of ownership to the group. DLA Piper provided legal advice on both the UK and China transactions. IMI took legal advice from Norton Rose Fullbright.
What were the challenges?
One of the most significant challenges was securing a microchip supply chain to facilitate the ambitious expansion plans. The worldwide shortage of microchips is well documented and failure to deliver a credible supply plan would have had the potential to block the sale.
What were the lessons learned?
Heatmiser’s manufacturing entity in China was originally established between Heatmiser and two local shareholders. This had to be restructured into a wholly owned subsidiary of Heatmiser, which was time-consuming considering the complex legal and tax regulations in China. Having access to our Chinese colleagues was highly valuable when navigating the filing requirements and approvals required by the Chinese authorities. The complexity was made tougher by the COVID-19 lockdowns in China at the time. Undertaking the restructure in advance of the transaction would have made the process more streamlined. Pre-sale planning is particularly important in complex groups involving overseas entities.