ICON66 – Volume 5
Timescale –
3 Steps To
Heaven
Stage 2. The
Chase – The
Approach
The corporate finance adviser will approach the list of potential buyers by personal contact or using a teaser (or one page summary) without disclosing the vendor’s name. The key is to drum up interest without compromising the confidentiality of the business. Only once a confidentiality document has been signed will the name of the vendor be revealed and the in-depth sales memorandum be distributed.
Meetings
No one is going
to make an
offer for a
company without
having met
the senior
management
and had a quick
walk round
the company
premises. However,
the number
of people involved
should be kept
to a minimum
and staff should
not be told
of the process
until just
after completion.
Rumours of
a transaction
or leaks can
erode value
and bring chaos
to the process.
A small number
of senior directors
will need to
be involved
in both the
marketing meetings
and the due
diligence.
Meetings should
generally be
kept off-site
as often as
possible.
Adequate preparation needs to be made so the message is consistent and the proposition is attractive. While the adviser’s role is to get the purchaser to the table, the vendor should expect to make a brief presentation, answer questions and importantly establish a dialogue with the purchaser.
Offers – Competitive
Tension
You need a
timetable to
ensure that
all the purchasers
submit offers
at the same
time. Not only
does that allow
the vendor
to compare
offers but
it also lets
the buyer know
that they are
in a competitive
environment.
Setting the
timetable requires
experience,
too tight and
you might frighten
everyone off,
too long and
you risk losing
momentum. Getting
companies to
meet that timetable
is easier said
than done – they
work at different
speeds in Bracknell
to Baltimore
and beware
the French
buyer.
The adviser needs to ensure at this stage that the offers contain adequate information for an informed opinion to be made on the preferred bidder. So in addition to price, he should ask the purchaser to provide details of funding, timetable, diligence and plans for the business in as much detail as possible.
Heads of
Agreement
Having received
indicative
offers, they
need to be
firmed up and
a preferred
bidder chosen.
This is a good
opportunity
for the adviser
to clarify
aspects of
the offer and
to negotiate
keener terms.
Buyers will
often resubmit
offers having ‘sharpened
their pencil’ and
sometimes changes
can be significant
if they believe
it will secure
a deal.
Heads of Terms contain the details agreed and also sets out further confidentiality terms and the extent of the exclusivity period offered. Once they are signed the negotiating strength passes from the vendor to the purchaser, so care needs to be taken in choosing the partner. The highest offer does not always win, far from it, there is the important question of deal structure, cultural fit and an assessment as to whether the purchaser can deliver on the deal offered. Normally, once Heads of Terms are signed completion can be achieved in 4-8 weeks.
Stage 3. Delivery
Due
diligence
Due
diligence can
mean different
things to different
buyers.
It normally
involves a
full commercial,
financial and
legal review
of the affairs.
This can range
from sending
a member of
the purchaser’s
team in for
a day or two,
to a full Accountant’s
Report and
an in-depth
diligence exercise
over several
weeks. Whatever
the level of
due diligence,
as a vendor
you need to
take it seriously.
Deals do fall
down in due
diligence and
it is usually
because of
a change in
business performance
or breakdown
in trust, due
to lack of
information.
Due diligence
needs to be
controlled
carefully to
protect the
business and
the deal. Chipping
away at the
deal terms
is a popular
pastime of
many buyers
and needs to
be controlled
and the “under
bidders” need
to be kept
lukewarm.
Legal documentation
Lawyers work
will tend to
run alongside
the financial
and commercial
due diligence.
While the purchaser’s
lawyers will
draft the Sale
and Purchase
Agreement,
the vendor’s
lawyer has
a key role
in limiting
the downside
in negotiating
the warranties.
It is important
to appoint
a legal adviser
with depth
of relevant
experience.
Completion
Negotiations
on a deal are
never over
until the deal
is signed.
To successfully
close the deal
your adviser
needs to actively
manage the
process right
through to
completion
and resolve
all the last
minute issues
that emerge.
Completion
itself is often
an anticlimax
and is no more
than a paper
chase followed
by a warm glass
of bubbly in
a lawyer’s
office at 1am
in the morning.
Then off home
for a decent
night sleep,
safe in the
knowledge that
you probably
won’t
ever have to
go through
it all again – heave
“ Ensure you meet all the advisers that will be handling your deal, not just the partners who hand it down to the junior members of the team”
“ chipping away at the deal terms is a popular pastime of many buyers”
