Many entrepreneurs’ goal is to start a company, grow the business, operate it effectively then eventually sell out their stake for a handsome profit. According to Robert Uhlaner, lead of McKinsey’s global Corporate Finance Practice, many business leaders are not prepared for the intensity of completing an M&A deal. Many executives lose sight of the strategic end goal and fumble along as the deal progresses. Therefore, it is imperative to get familiar with the M&A process and the key objectives at each stage in order to ensure a smoother, more rewarding transition.
Step 1: Vendor Assistance – The Value of a Financial Advisor
The common expectations that M&A clients who are looking to sell are to (1) obtain the highest possible valuation, (2) complete the procedure in the shortest amount of time while (3) ensuring the tightest measure of confidentiality. To achieve these objectives, it is important to take a structured approach to finding the right buyer.
This is where the financial advisor comes in with a structured filtering process to ensure that both the number as well as the quality of potential buyers are as high as possible. Initial screening goes through a rigorous process of deliberating the strategic rationale, coming up with a sound valuation and assessing the overall fit for the organization.
Step 2: Exit Preparation
Begin with an end in mind. Every M&A deal should consider the ultimate objectives for the buyer, be it to maximize returns or to achieve a strategic goal. In this step of the process, the financial advisor will work with the client on the deal structure and exit strategy for the buyer. Work needs to be done to prepare key items to discuss during the negotiation process and identify potential deal breakers. Lastly, a teaser containing an information brief should be prepared for circulation.
Step 3: Competitive Auction
The next stage of the process involves getting bids from interested parties. There are a few key phases:
The teaser prepared during the preparation stage is circulated among a list of preferred investors after confidentiality agreements are signed. The client should provide limited access to information about the company and conduct Q&A sessions to provide sufficient disclosure to generate interest in the buyers. Interested parties will then put up indicative offers which are non-binding in nature.
Investors are further shortlisted before moving on to this stage of the process. At this point, the client will provide full access to information for the buyers. The investors will then conduct due diligence on the client by carrying out site visits, conducting management presentations and gathering more information. By the end of this stage, the client should expect binding offers from interested parties.
Among the pool of interested buyers, a selected few will enter the negotiation phase. Key commercial terms and pricing are discussed throughout the process and the financial advisors will work with lawyers to draft the sale and purchase agreement (SPA). The best offer will be chosen for exclusivity and final negotiations.
Step 4: Closing
A final negotiation is done with the exclusive buyer before the SPA and other transaction documents are finalized for signing. The client will have to fulfil the conditions set out by the SPA before the deal is finally closed.
The M&A process may seem like an arduous task to accomplish. However, armed with the right processes and organizational skills, along with a trusted financial advisor, business owners could unlock great potential value.