Questions & Answers

How to provide relevant information to potential acquirors without falling into the overhype/overstatement or the non -disclosure of some less favourable information (that will be found in the DD process later on)?

Answer

Submitted by lesnemethy on Mon, 06/14/2010 - 12:01.

There is always a fine line to be drawn between marketing a company in the best possible light and providing full and true disclosure. One should definitely not hide the truth—not only can that incur litigation—but if the truth becomes know at due diligence (which usually does happen), then the transaction may well abort. To the extent that one makes unfavourable information known early in the process—one can then rest assured that the interest of the investor and his proposed valuation is real, rather than based on assumptions which are not true. There is often an art to stating the truth, in a way that does not deter investors.

What is the difference between a mid-market transaction and say a major corporate (+$1 billion) M&A transaction from the advisor's perspective (amount of time spent with management to explain, time spent on accounting issues, ), from the financing structure (earn-out, debt available, capital structure D/E, )? To what extent external parties are invovled (lawyers, auditors, technical specialist, etc...).

Answer

Submitted by lesnemethy on Mon, 06/14/2010 - 11:59.

Sometimes doing larger deals is easier than doing smaller deals. Management and shareholders of billion dollar plus corporations have probably done transactions before, hence there is less to explain. The larger companies have personnel that are typically more highly trained and specialized, and who are used to producing the type of information required by investors. The issues (e.g. earn-out, capital structure), intellectually, are usually similar to mid-sized transactions, the larger transactions merely have a few more zeros on the end. The due diligence of a larger company can be more massive, with more subsidiaries, more records to check, etc. This may require larger numbers of staff from each of the advisory firms.

How far should the advisor go in the provided advisory services? Limit itself to the financial and negotiation aspects or try to accompany the buyer in the implementation of its acquisition?

Answer

Submitted by lesnemethy on Mon, 06/14/2010 - 11:58.

Very few M&A advisors have the skills necessary to perform what is known as “Post Acquisition Integration”. This is a skill set typically possessed by management consultants rather than M&A advisors. However, if you can find an M&A advisor who has these skills, having the continuity could be an advantage.

What are the steps beyond the financial and legal analysis that you find are crucial to make a successful transaction (i.e. not only closing the deal but making sure it creates value for the investor)?

Answer

Submitted by lesnemethy on Mon, 06/14/2010 - 11:56.

Perhaps most important of all is ensuring that you have the right management team in place post-closing, and that they are motivated and that their interests are aligned with shareholders (e.g. via their compensation or bonus system).

It is much better to have the integration plan and strategy worked out prior to closing, so that implementation can commence immediately. This gets an acquisition off to a running start. If, by contrast, shareholders and manager spend months figuring out what they want, and how they might wish to restructure, this leads to very damaging loss of motivation, perhaps even loss of key staff. 

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