A model way to plan a merger

A new program aims to cut down the guesswork when companies are risking billions. Michael Greenwood reports
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The Independent Culture
The first months of 1998 have seen an extreme outbreak of merger fever. Though Glaxo Wellcome and SmithKline Beecham have decided against joining up, plenty of other big names - including the supermarket groups Somerfield and Kwik Save and the insurers Commercial Union and General Accident - have decided to go down the aisle - towards a future that can be every bit as uncertain as that awaiting individuals who marry.

It is difficult to imagine the atmosphere in those boardrooms when the pros and cons of mergers worth up to pounds 100bn are being debated. But whatever the value, a new piece of software promises to cut down the guesswork and uncertainty in those vital days which can make or break a merger.

if... acquiring is the first fully branded package from Interactive Forecasting, which has been producing customised forecasting programs for the likes of British Telecom, Esso and Cadbury Schweppes. The if...acquiring package, designed to assess the impact of a merger, has just been purchased by the accountancy firm Price Waterhouse with a specific customisation to encompass a calculation of how a potential merger would affect earnings per share.

The if... system acts as a flight simulator for all aspects of a company's trading, but more importantly in a merger situation, it does it quickly. As Geoff Bristow, managing director of Interactive Forecasting, explains: "You can put in a small amount of information and the model will start making what we call a `quick and dirty' view almost immediately. Within two minutes you would have a view of the company's value to you. On the other hand, you could spend several days putting in very detailed information for the due diligence stage at the end of a deal. So you can go from `quick and dirty' to due diligence all with the same model.

"If you were trying to do something as complicated as a global merger, you have got to wait several months while somebody does all the spreadsheets. Once you have got them, it is only the person that designed them that can use them. With if...acquiring, everybody involved can have a version of the model and the data can be e-mailed across the world."

Dr Bristow's own experiences of mergers and acquisitions were the impetus behind the ambitious start-up of Interactive Forecasting, which began devising the if system five years ago with pounds 1m backing from the venture capitalists 3i.

He said: "This is the tool I would have loved to have had. I was experimenting with techniques like this at the time I was working on mergers. All I was able to use was a Lotus spreadsheet - it was very, very crude, but it was the initial idea that got me thinking about the potential for world- class forecasting software."

Interactive Forecasting began offering its customised services last year, with great success. BT commissioned a bespoke if... program to work on its long-term strategic planning. The system has enabled BT to examine how changes in telephone use after building society demutualisation would affect telephone use, right through to running assumptions on the performance of their competitors

Dr Bristow said the if... programs allow you to do what you normally do but it is just a lot faster. He said: "The if... system allows you to put detailed information on screen of all aspects of the firm's trading. There are other forecasting programs available, but the beauty of if... is the speed at which it can represent the potential performance of the whole company.

"People do little spreadsheets to see if a company would be useful to their portfolio, but they probably create that from scratch each time, and when it comes to the big one when they are doing a deal they will have to have a huge model.

"if... is doing a simple thing, but doing lots of it very fast and live. If you have sales of this, working capital needs of that, and interest rates are this, what does that mean to your balance sheet in the next few years, and where does this put your share price?"

At the beginning of March, Greenwich NatWest, the global debts market division of the NatWest Group, announced that it would be using an if... modelling system known as if profitable to examine the "what ifs" of a debt financing proposal.

Steve Savage of NatWest said: "We have been using a number of sophisticated models to help assess the viability of the structured debt facilities but the added value of the if... profitable system is that it enables us to work interactively through a wide range of different structures and varying scenarios at great speed."

Within the next few months Interactive Forecasting hopes to be launching new brands in the if... range, which will cover areas like valuing, budgeting, leasing and investing.

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