Corporate Strategies in M&A: Buy and Sell-Side

Being involved in any financial institute makes you a financial advisor to clients. However, for the clients looking forward to M&A transactions, it is important to have knowledge of the market and business of a particular industry and then make recommendations. It seems obvious though as a financial institute is involved with almost all industries. So they develop a fairly reliable perspective towards the industry.

The scenario is different when the corporate world is concerned. In the corporate world, access is a bit restricted to competition or competitive intelligence, especially from companies themselves. In a corporate domain, capital is used in various forms to create opportunities, such as M&A, investing in an organic business, dividends, and shareholder return as well as share buybacks.

Using this capital isn’t something a company takes for granted as it earned with pools of the sweat of the member of the company. Research at all levels is done starting from primary research that involves articles, reports, news, etc. until having diligence teamwork on the target company. Using this information market growth and opportunities are determined and the decision for making an M&A transaction is taken.

While making an M&A transaction both buy-side and sell-side have different approaches to deal with the transactions. But the common thing that needs to maintain is transparency. It’s essential to be very intellectually honest and keep personal integrity while negotiating. It is usually seen that sell-side the driver. A seller or their advisor tends to create an illusion of competitive situations that help them earn the best deal possible. However, there are few times when this table turns, and to know what points can turn, is an art of deal-making. But yet being transparent and fairly upfront always help things to become easier and convenient in terms of value and consideration because there is a reputational game in play and that reputation follows you. Again, having proper due diligence, especially on the sell-side helps them present their business to be sold in the best way possible. Also, it helps avoid any surprises that might risk the transaction.

Due diligence should include asking important questions, evaluating all the area buyers, and their idea of exploring the business. A seller needs to understand how buyers are thinking about the business. This helps the seller to create a specific strategy while selling the business. Of course, there is a lot of preparation, a lot of focus on confidentiality and there is a lot of advisers involved in the process, from financial and legal to investment banks involved in the M&A transaction.

Every seller wants most of their asset but they need to keep it reasonable and convincing to the buyers. Also, they should be conscious of the other sellers with the same kind of opportunity. There is a need to generate enough real interest for the business which can be done by advertising the business, through a SIM or a teaser. It is advisable to target one dedicated set of buyers and create a proposal that might suit their requirements. To know that a survey will be a helpful way. Once involved, ask buyer questions to test their interest level in the deal and the company. Also, note the different perspectives of buyers about the business to understand the market viewpoint on the company.

Investment advisors who take time to understand focus areas of other companies are highly recommended in a corporate in the long run, in comparison to those that run broad auctions. Investors tend to balance the value of an asset with the certainty of getting it closed. To focus on a business that is not sure whether the team will be able to return capital is almost similar to how much the team can get from a value standpoint for this business because it may distract the management.

There are two ways of selling a business i.e. broad auction or proprietary deals. Ideally, proprietary deals are suggested as with these deals there is already a lot of the legwork on the industry and the segment in the sector that’s already done. But that is not always the case. When it comes to competing with the other similar assets in the market, getting involved in broad auctions is helpful as it allows us to define a point of view on a specific target or sector. Sellers can also grab this opportunity to learn from reviews of each of the similar assets, which helps refine a point of view on a specific asset.

However, it depends on want the seller wants. Along with the value of the asset, other motivations and aspirations of the entrepreneur are also a concern or an opening that the buyer should take note of as it can ease the transaction with understanding. Although, the mindset of the entrepreneur matters in business, the seller is needed to not be attached to certain parts or deals that might make the transaction complicated.

M&A is a Market Company and then valuation. Talking about the buyer side, they are advised to put together a cross-functional team that evaluates a business and there are two areas of that i.e. a commercial diligence effort and the other is a confirmatory diligence effort.

A lot of this investigative work is to defend a financial forecast that the transaction will offer. It’s essential to think about what incremental the buyer can bring to bear in the target asset and this could be cost savings, revenue generation, or steady-state, which are matters that come into picture during due diligence period.

Only successful completion of the transaction is not the end, but the post-close of the deal is also something the buyer-side is concerned about. To avoid any trouble post-close, the final agreements should be signed after going through the documents and details of the deal properly and if required changing it at the right time. This is important for the seller side as well. Reading agreements helps dealers to think through all how things could come up, be it big IP issues, environmental issues or big tax issues and how that could trickle through the system and be costly for a buyer.

Sometimes people underestimate the value corporate M&A team brings to the organization of actually running a price and getting a deal done. But this helps in lot more ways than one. All the professionals need to be savvy with the legal side of transactions and be able to acknowledge when they don’t know something so they know when to reach out to lawyers timely. Also, consider the company culture, environment, and other business concerns while getting involved in the M&A transaction.