by Mike Milani
Baker Tilly Virchow Krause, LLP is an IMA member…
Do-it-yourself mergers and acquisitions (DIY M&A) has become a symptom of many failed privately held company sale transactions. In these situations, company owners and managers have attempted to manage their own sale process without assistance from a lead sell-side financial advisor and with limited assistance from their other deal professionals.
In a typical situation, the business owner is approached by a potential buyer and believes that he or she can navigate and negotiate a sale process with accounting, tax and legal advice. Unfortunately, a large number of these one-to-one negotiations, which business owners mistakenly believe will save time and money, are ending without a closing, resulting in a very frustrated and discouraged seller.
Reasons for DIY M&A Failures
- Lack of negotiating leverage with a single buyer who is aware that there are no other competing offers
- Perceived or real re-trade of transaction value and terms
- Due diligence delays, issues and findings due to insufficient upfront preparation and limited bandwidth to facilitate information flow
- Deal process fatigue as the seller attempts to balance managing a sale process while operating their business
Remedies for Success
- Retain a lead sell-side advisory team including investment banking, legal, accounting and tax professionals
- Work with your advisors to determine the potential range of enterprise value (the headline sale price), pre-tax and post-tax equity proceeds (the net amount of money for the seller) and the desired key transaction terms
- Assess the benefits and costs of running a sell-side process that includes a number of strategic and financial buyers
- Run a sale process with multiple bidders with a focus on:
- Maximizing value
- Optimizing transaction terms and deal structure
- Minimizing closing risk
In many instances, a seller can benefit from working with an investment banker who can lead a well-controlled and time-efficient sale process, which could include:
- Developing sophisticated marketing materials (i.e., teaser, confidentiality agreement, confidential information memorandum and management presentation)
- Contacting strategic and financial buyers, distributing marketing materials and gathering and vetting indications of interest
- Preparing the management team for meetings with potential buyers and coordinating the due diligence process and data room for both the seller’s and buyer’s deal advisors
- Assisting the seller in negotiations of transaction documents with the seller’s legal counsel
In nearly all instances, the additional enterprise value and enhanced transaction terms driven through the investment banker-led process will more than offset the advisory fees paid for the successful transaction.
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