M & A CritiqueThe various stages to find the best buyer and the best seller for a company
Buying the right company at a reasonable valuation is the key to success in merger and acquisition. For the seller, it is important to scout the right buyer that can push the company to growth. The first thing that a seller must do is to make a list of buyers like companies, investment firms and individuals to be approached during the M&A sale process. Then one will have to determine how many buyers to approach. While managing multiple buyers can be challenging, it is necessary to give yourself the best chance of closing a successful deal.
There are mainly two types of buyers – strategic and financial. The former are those operating companies that provide products or services and are often competitors, suppliers or customers of the firm. Their goal is to identify companies whose products or services can synergistically integrate with their existing business. A strategic buyer has a greater motivation to buy the business and is willing to pay more, especially if key synergies exist between the seller and the acquirer. The financial buyer includes private equity firms like venture capital firms, hedge funds, family investment offices and high net worth individuals. They are in the business of making investments in companies and make profits on their investments.
For selling process, one can adopt either negotiated sale or targeted auction or full auction. In the negotiated sale process, the seller can approach one buyer at a time and negotiate exclusively with that buyer. If unsuccessful, then the seller can approach the next party and continue to work down the list until the right buyer is found. In the targeted auction process, one can discretely contact a limited number of potential buyers and negotiate with the most appropriate and interested buyers. In the full auction, the seller can contact a broad list of potential buyers. Strategic buyers will include firms that are competitors, suppliers, and customers.
By engaging the right M&A expert or a firm, the management can concentrate on the operations of the company. A good M&A professional knows how to evaluate the potential buyers to find the one. The expert has an important role in filtering through the initial interested parties, and presenting a few select choices to the owner and convey both the pros and cons of each group that has made the initial cut. A reputed M&A firm will invest a great deal of time, money, and effort to find the professional buyer. A proper filtering process can save the management time and resources. The sellers must evaluate operational and cultural fits and if the owner wishes to stay on with the business, agreement on go-forward plans is critical to ensure a successful partnership between the newly combined operations.
The utmost priority of the management in the sale process is to ensure that the deal is performed in a confidential manner in order to avoid leaking the news of a sale. Moreover, the seller must understand the buyer’s motives for acquiring the company and negotiate the deal accordingly. The more value drivers there are for the acquiring operating company like access to new markets, products, brands, services and customers it should be willing to pay more. Therefore, the price the seller could receive from such a party could be much higher than from a buyer with purely investment aims, such as a private equity buyer or an investment bank.
In order to reap the maximum gain in the sale process, significant time and effort are required. One must think strategically and critically about the business and gather legal and financial information. The buyer must also do proper due diligence before signing on the dotted lines of acquisition. By having more options, one can increase the likelihood of finding a buyer and deal structure that fits all the goals.
