M&A Auction Process Overview Flashcards
What are the 3 key phases of an M&A process?
- Preparation
- Marketing Process
- Execution and Completion
What is included in the preparation step of an M&A sale process?
Preparation for an M&A sales takes from 4-12 weeks and includes:
* Prepartion of key sale process documentation
* Preparation of virtual dataroom
* Preparation of business for sale
- Standalone financials
- Legal and tax structuring
- Standalone and transitional services required
* Identification of buyer universe
* Establish project timetable, key workstreams and responsibilities
What is included in the marketing process step of an M&A sale process?
The marketing process in the M&A takes around 10-14 weeks total, with stage 1 taking around 4 weeks and stage 2 around 6-8 weeks
* Initial buyer contact
* Stage 1 non-binding indicative offers
* Assessment of non-binding indicative offers and selection of parties for Stage 2
* Stage 2 due diligence and review of transaction documentation
* Assessment of final offers
What is included in the execution and completion step of an M&A sale process?
The execution and completion step of an M&A sales process takes around 1 week to complete
* Negotiation of transaction documentation
* Announcement
* Satisfaction of any conditions prcedent to completion
What is the detailed summary of the M&A process structure?
- Preparation
- Initial Outreach
- Narrowing of Buyer Pool
- Confirmatory Phase
What are the three differrent types of process designs in an M&A deal?
- Broad Auction
* Broad “public” process involving a large number of strategic and financial investors
* Commonly conducted as a two-step process - Limited Auction
* Focused targeting of most liekly investors
* Can be conducted as a one- or two-step process - Negotiated Process
* Approach a single (strategic) investor
* Customized diligence process from the outset
What are the advantages and disadvantages of a broad auction process in M&A over limited auction and negotiated process?
Advantages:
* Maximizes the likelihood that all viable investors will be contacted
* Allows to identify a potential wild card willing to pay an unusual price
* Creates maximum competition
* Limits investor’s abilitiy to assess negotiating position of seller
* Allows participation of both strategic and financial bidders
Disadvantages
* Time and resource requirments
* Management is generally required to spend a significant amount of time with bidders and their advisors
* Some investors may refuse to participate in a broad auction
* High risk of information leakage
What are the advantages and disadvantages of a limited auction process in M&A over broad auction and negotiated process?
Advantages:
* Allows to focus on Tier-I/II investors
* Signals credible alternatives to ultimate investor(s)
* More flexibility in timing, investor selection and process design
* Balanced approach between competition and confidentiality
Disadvantages:
* Lose optionality that a non “Tier I/II” investor offers a “knock-out” price
* May omit certain potential investors
What are the advantages and disadvantages of a negotiated process in M&A over broad auction and limited auction?
Advantages:
* Least dsiruption of business and employees
* Opportunity to capture preemptive value
* Opportunity to accelerate closing
* Greatest confidentiality
* Maximizes future alternatives if process is not successful
Disadvantages:
* May not receive highest value
* Difficult to create competitive pressure
* Risk of single investor taking process “hostage”
* May need to provide exclusivity
What are the key preparation phase considerations in an M&A?
- Key process documents
- Financial plan preparation
- Data room requirements
- Business separation considerations
- Key work streams and responsiblities
What are the key parts of the preparation of a strong but ahievable standalone financial plan?
- All management projections and assumptions must be developed by management
- Standalone financial projections should reflect management best estimate of future business development
- Key requirements for stndalone financial projections:
- Ideally 5 years of “standalone” projections for income statement, key balance sheet items and cash flow statement
- Show 3 years of historicals in same format
- Detailed build-up of model drivers
* Revenue
* Gross margin
* Operating margin
* Working capital
* Cash flow
- Bridge/reconciliation between management reporting format and audited financials
What ar ethe types of documents usually included in the online dataroom during M&A?
- Corporate and Organisational
- Material Contracts
- Business Operations
- Human Resources
- Financial Information
- Taxation
- Insurance
- Information Technology
- Intellectual Property
- Litigation
- Real Estate/Enivronmental
What are the key questions that arise during due diligence analysis?
- What do they do?
- Operating divisions
- Growth drivers
- Costs in the business
- Customers & suppliers
- Geographic split
- Market share
- Recent events
- Historical financials
- Projections
- Adjusted EBITDA
What is an SPA in a sellside transaction?
SPA is a sale and purchase agreement and is a key document in any sellside transaction. A good SPA is clear on the final determination of the price, achieves the desired risk sharing among the parties, and ensures certainty between signing and closing.
What are the key clauses in an SPA?
- Object:
* Entitities involved
* Type of sale - share sale or asset sale - Consideration:
* Purhcase price
* Effective Date/Closing Date accounts, payment of adjustment amount - Closing, Execution:
* Closing conditions
* Seller’s obligations/covenants - Risk Sharing:
* Seller’s guarantees
* Tax
* Environmental matters
* Limitations on Seller’s liability
* Purchaser’s obligations/covenants and guarantees
