What is the deal?

The Azets team provided buy-side advice and due diligence services to CityFleet Networks on its acquisition of CMAC Group, which completed for £80.2m earlier this year. CityFleet is a wholly owned subsidiary of ComfortDelGro (CDG) Corporation, a Singapore-listed multinational transport and mobility group. CMAC provides passenger transport and accommodation management to businesses in the rail, travel, healthcare, corporate and public sectors. It has operations in the UK, France, Spain, Portugal, Greece and the Netherlands. CMAC was complementary to CityFleet’s operations in the UK and Europe, and will now be able to tap into CDG’s deep market knowledge and reach to grow its business.

How were you introduced to the deal?

This was the fourth deal where we advised CityFleet. More broadly, Azets is an adviser to CDG in the UK, providing full-spectrum accountancy and tax advisory services to its subsidiaries. In this instance we were engaged at the offer stage, providing initial bid support, valuation methodology critique and a comprehensive vendor due diligence (VDD) review, including identification of risks and areas for further investigation. KPMG was sell-side adviser and produced the initial VDD report for CMAC. Once exclusivity was secured, we carried out a focused financial due diligence exercise that drilled into the metrics and the risks identified in the initial phase of work, and completed a comprehensive trading update. The deal took 10 months to complete.

What was the deal structure?

The headline purchase price was £80.2m. The acquisition also included structuring components you would typically expect in a deal of this size. CMAC’s key management team will be retained and incentivised to grow. The support for growth is something we’ve seen first-hand with both CityFleet and Metroline, CDG’s two key UK subsidiaries. CityFleet’s legal advisers were Fieldfisher.

What were the challenges?

Due to items identified during our review and trading update, amendments were made to the final deal to suit all parties. We worked with our client to ensure there was a complete understanding of the issues identified and provided our opinion on appropriate deal structuring, to protect their interests as the buyer while also honouring the principles of the originally tabled offer.

In addition to core buy-side support, we provided a detailed tax review of the business – including sector-specific taxes, such as the Tour Operators’ Margin Scheme – and recommended appropriate protections within the SPA and post-deal workstreams to integrate with the existing CityFleet group companies. 

And lessons learned?

A theme of the past 12 to 18 months is that deals have taken longer to complete, with the period of due diligence, both buy- and sell-side, increasing as a consequence. This dynamic has somewhat altered with potential CGT changes, adding some impetus to live transactions. But it will be interesting to see what the new normal looks like once the dust settles on the Budget this month. 

We prioritise questioning on key value drivers, performance metrics and items which have a material impact on the transaction. Deal fatigue remains a key risk to transaction success and it’s our job to clearly explain to a vendor why something is important, which is much more likely to get a receptive response. CMAC management will be a key part of the business post transactions so working with them, not against them, to ensure the relationship is sustained post-deal is an important part of our work.