PE Deal Process

Question 1

Steps of a deal process

Answer 1

1. Sourcing deals
2. Review Teaser & Sign NDA to get full CIM
3. Diligence Phase 1 : Review CIM and submit IOI
4. Diligence Phase 2: Data Room Review and Triage Diligence
5. Diligence Phase 3: Deep Diligence and Proffer of an LOI
6. Closing

Question 2

1. Sourcing deals

Answer 2

Deal can come from several sources:

• Few pages teaser from investment bank
• Relationship with the target company’ CEO which wants to sell their company to your PE firm -> rare because it means less competition for this asset
• One of a PE firm’s existing portfolio companies finds a potential add-on acquisition it wants the PE firm to negotiate and finance
• Reaching out to different targets. CEOs, cold calling

Question 3

2. Review Teaser & Sign NDA to get full CIM

Answer 3

• IB selling asset via auction so teaser goes to many different companies
• this is where PE firm sees if the company could be a potential target
• PE firm reads the teaser to decide if its worth signing an NDA in other to receive the full CIM
  While reading the teaser, the PE firm considers several factors:
  1. Does the investment align with the PE firm’s investment criteria?
  2. Are there any barriers that could stop the company from closing the deal?
• if the firm thinks the deal is a good idea they sign an NDA and requests the CIM
• if they don’t, then they don’t sign the NDA

Question 4

3. Diligence Phase 1 : Review CIM and submit IOI

Answer 4

• PE firm receives CIM (around 30-100 pages) containing info about the target’s business, industry, strategy, historical financials and projected financials
• Using CIM, the PE firm associate builds a simple LBO to see how much the firm could pay for the target company while achieving the IRR. They might also do a light diligence to put together comparables, reviewing target public filings and meeting with a few industry experts. then puts this information together and presents findings in a few pages summary to MDs
• If MDs like the deal profile they submit a non-binding bid -> IOI (indication of interest)
• If the firm decides they don’t like the deal profile, they drop out of the process
• If the firm’s IOI is too low compared to competitors, then the bank can withdraw the firm from the process

Question 5

CIM

Answer 5

confidential information memorandum

Question 6

4. Diligence Phase 2: Data Room Review and Triage Diligence

Answer 6

• PE firm team analyze everything about the company’s financials to confirm all facts, perform diligence
  Might meet with management face to face to discuss company and its future
• Do a more comprehensive LBO model and its own operating/ financial projections to begin actually finding out what the actual price to acquire the firm would be
• PE firm prepares summary of its diligence, management meeting, and LBO model output and presents it to MDs
• If the PE firm likes the deal, they will move into phase 3 of diligence and ask questions that need to be answered. If not, they drop out of the process

Question 7

5. Diligence Phase 3: Deep Diligence and Proffer of an LOI

Answer 7

• Engage in full diligence with 3rd party lawyers, accountants, consultants to perform deep market study
• Expensive stage of the process
• Banks are asked to provide their best offers for financing
• Update model with any new information, and do a final presentation
• The final MDs decides whether to put in a binding bid commonly referred to as a Letter of Intent (LOI) and, if so, how much to bid
• If the MD decides not to bid then the firm is out of the process
• If the firm submits a binding bid then it waits to hear the target’s decision and moves on to closing if its bid is accepted

Question 8

6. Closing

Answer 8

• once a bid is accepted bu the target’s management, the deal may still take a while
• lawyers, accountants, IB need to finish their diligence
• final financing documents must be executed with the banks
• shareholders must approve deal

Question 9

Teaser Sections

Answer 9

1. Transaction Overview
2. Key Financial Metrics
3. Investment Highlights
4. Industry Overview

Question 10

(Teaser) 1. Transaction Overview

Answer 10

overview of the opportunity, short over view of transaction, industry

Question 11

(Teaser) 2. Key Financial Metrics

Answer 11

high level info, includes EBITDA, revenue, gross profit, EBITDA margins

Question 12

(Teaser) 3. Investment Highlights:

Answer 12

key considerations when making your potential investment. Market position, product offering, customer overview, expertise of management team

Question 13

(Teaser) 4. Industry Overview

Answer 13

overview of key trends that might be happening in the space