What are the key factors that make for a successful buy-side transaction?

gap analysis

If you’re planning to merge with or acquire another business, you need the structure of a well-tested mergers and acquisitions (M&A) process. You may have acquired the services of an external M&A advisor or plan to use a neutral third-party business valuation expert like Quantive.

Whichever route you take, you’ll need to be aware of the process and a few hoops and hurdles. Executing a buy-side transaction comes with pitfalls as well as opportunities.

Opportunities in M&A arise because:

  • your company can grow faster
  • your business process can acquire missing competencies
  • you can expand your production capacity
  • expanded services and product portfolios can increase your profitability.

The pitfalls can include everything imaginable—from incompatible business practices in the target business to disgruntled employees worried about the future of their jobs. Each deal is different, but there are ways to overcome thorny deal issues and streamline your deal timeline.

The buy-side transaction process starts with goal clarification

If you have hired a third-party M&A specialist, your project typically begins with a kick-off meeting at your site. During this meeting, your project buy-side M&A team will explore your company’s strategic direction.

This is the time for a detailed discussion. How does acquiring an existing business contribute to that direction or vision? What is its effect downstream when a sea of changes could take the organization by surprise?

Your prospective seller may have already been located as part of a confidential sell-side target list or could have simply been a ripe grape on the vine of your business network. Whatever the method you used for finding that business you’re after, you’ll need to settle into a timeline and undergo a careful process to avoid the biggest pitfall of M&A: buyer’s remorse downstream

The Steps of a Successful M&A Strategy

Step 1: Develop and articulate your M&A strategy.

Your M&A strategy must be consistent with your business model as well as complement your overall corporate strategy. Your board and investors will want to know how acquiring an up-and-running business is a better approach than growing your own.

Step 2: Screen and identify your target candidate(s) for acquisition.

Determine how your target(s) can help you achieve the growth and increase in profitability you seek. What does the new acquisition bring to your company in terms of established value and downstream market advantage?

Step 3: After selecting the target company, begin your due diligence valuation. The valuation and analysis are complete examinations of the company. Again, you’ll need some third-party expert help on this step. For example, Quantive can be a reliable resource for assisting the seller with gathering all the data and information needed for valuation.

Step 4: Sign a letter of intent

This is where you, as the buyer, put in writing the terms and informally agreed-upon purchase price. Your LOI will include your promise of confidentiality so that your rep can thoroughly investigate the seller’s company.

One pitfall here is that while the LOI includes the term NON-BINDING in all caps when you sign the LOI, you have a “duty of good faith” and implied fair dealing. That duty could be referred to if subsequent disagreements and disputes arise. Again, you’ll need the expertise of trained attorneys during this phase.

Step 5: Ultimate execution of the deal

The LOI needs to be detailed to be the foundation of the final agreement. You will probably exchange several draft versions of the final deal. The normal time frame for this step is 30 to 60 days.

Step 6: Final due diligence.

At this stage, you negotiate the purchase agreement details with the seller.

When the LOI is signed, you have 60 to 90 days to investigate the seller thoroughly to determine whether you should finalize the deal. Your investigators will likely conduct social and reputation inquiries to gain a perspective on the seller’s track record and working style.

You may also need to arrange third-party financing for the deal, in which case the bank will launch its own due diligence investigation.

Step 7: The purchase agreement

The purchase agreement, in addition to fixing the price, also has, or must be accompanied by, some or all of the following elements:

  • details on existing mortgages, loans, or financing details between you and the seller
  • safeguards for seller’s creditors and shareholders
  • tax certifications and state licensing compliance

Step 8: The deal is closed

The business changes hands Within five working days after executing the purchase agreement. The deal is consummated, and you transfer the agreed purchase price to the seller’s bank.

Watch for seller performance slippage during the 8 M&A stages

There will be an interim period of fewer than six months from the informal agreement to the close of the transaction. The outgoing owner, probably eager to go from boss to retired person, needs to help you keep the company operating smoothly.

Your range of options includes personal oversight and being alert to problems, relying on the seller’s front-line managers, or, perhaps, offering the outgoing owner a part-time consultancy position to smooth the ownership transition.

Let’s Recap

Most business experts agree that acquiring a fully functioning business is far easier than starting from nothing. So, M&A can be a fast track for growth and increased efficiency as new technologies mature downstream. Finding an expert advisory to help conduct a buy-side transaction can be challenging, but luckily we can help.

From the buyer’s perspective, M&A begins with a clear understanding of how the acquired business will meet your business goals and sync well with corporate plans and policies. The steps in the buy-side transaction process begin with a strategy and culminate with a final purchase agreement.

In between, however, the seller’s business valuation is the lynchpin in determining whether the company has the numbers, systems, and past performance to make it saleable.

Quantive has over a decade of experience advising CEO Founders through ownership transitions. We possess the necessary know-how to guide you through a successful transaction–no matter what side of the negotiating table you’re on. Contact us today.

Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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