3.
Initiating the Deal:
The Buyer’s Perspective
1. ASSEMBLING THE TEAM
2. DEVELOPING AN ACQUISITION PLAN
3. APPLYING THE CRITERIA: HOW TO NARROW THE FIELD
4. APPROACHING A COMPANY THAT IS NOT FOR SALE
5. DEALING WITH THE SELLER’S MANAGEMENT TEAM
6. DIRECTORY OF M&A RESOURCES FOR PROSPECTIVE
BUYERS (AND SELLERS
1. ASSEMBLING THE TEAM
Every buyer needs to develop both
A. internal working team: include representatives: include finance, sales and
marketing, strategic planning, and operations departments. CEO himself or to
nominate a contact person for the acquisition transaction
B. external advisors, as lawyers, accountants, investment bankers, valuation experts
2. DEVELOPING AN ACQUISITION PLAN: Acquisitions may provide better
growth opportunities than normal expansion
1. Develop acquisition objectives. (Why? What? 9. Obtain all shareholder and third-party consents and
Where? How? Who?) approvals.
10. Perform phase II confirmatory due diligence. (Were
2. Analyze the projected economic and financial our assumptions accurate? Do deal terms need to
gains to be achieved by the acquisition. change? What protections do we need?)
3. Assemble an acquisition team (managers,
attorneys, accountants, and investment bankers)
and begin the search for acquisition candidates. 11. Structure the legal documents.
4. Perform due diligence analysis of prime
candidates (test the premise of the deal). 12. Prepare for the closing.
5. Initial negotiations and valuation of the selected
target. (How much can we really pay and how?
Determine price and terms.) 13. Hold the closing.
6. Select the structure of the transaction. 14. Implement post-closing tasks and responsibilities.
7. Identify sources of financing for the transaction. 15. Oversee the integration of the two entities.
8. Engage in detailed bidding and negotiations. 16. Focus on long-term integration.
synergy is a key consideration in mergers and acquisitions. If a buyer pays exactly what the
business is worth on a stand-alone basis, then any benefit obtained from the planned changes
(i.e., synergy) is profit to the buyer
Step 1: Identify Your Objectives
So, below goals are highlighted:
Achieve certain operating synergies and economies of scale with respect to
production and manufacturing
Obtain the rights to develop products and services owned by the target
Stabilize the earnings stream and mitigate the risk of business failure through
diversification of the company’s products and services.
tax-efficient project
Exploit residual assets that have been undeveloped or underdeveloped by the
target company’s retiring or burnt-out management team
Penetrate new geographic markets.
Take advantage of a bargain. The target company may be available at a
distressed price
Step 2: Draft the Plan
The acquisition plan will also identify:
The targeted size of the acquisition candidates.
The source of acquisition financing and the amount available.
The method for finding candidates (e.g., internal search or use of intermediaries).
The desired financial returns and/or operating synergies to be achieved as a result of the
acquisition.
The minimum and maximum ranges and rates of acceptable
revenues, growth, earnings, and net worth of the seller.
The impact of the acquisition on existing shareholders of your company.
The likely competing bidders for qualified candidates.
The members of the acquisition team and the role of each.
The nature and types of risks that the buyer is willing to assume (versus those that are
unacceptable).
The desired geographic location of the target company.
The desired demographics and buying habits of the seller’s customers.
The plans to retain or replace the management team of the target company, even though
this policy may vary by candidate; include a section addressing at least your preliminary
plans.
Your willingness to consider turnaround or troubled companies.
Each buyer will have a different tolerance level; some want and
prefer the cost savings of buying a fixer-upper company, while
others prefer the company to be pretty much intact.
Your tax and financial preferences for asset versus stock transactions.
Your openness to full versus partial ownership of the seller’s entity, or your willingness
to consider a spin-off sale, such as
purchase of the assets of an operating division or the stock of a subsidiary.
Your interest or willingness to launch an unfriendly takeover of a publicly held company
or to buy the debt from the largest creditor of a privately held company. Page.64
3. APPLYING THE CRITERIA: HOW TO NARROW THE FIELD
Criteria to narrow list of target Acquisitions
Marketing: Market leader with recognized brand name and market
share
Sales: has a substantive growth and exist in geographical levels
Finance; strong relation with customers, creditors, vendors and debtors
with good EBITDA results and positive cash flow
Technology: products don’t subject to rapid techno. Changes
HR: strong management team and staff
Operation: has room to grow
To define range of purchase price and range of revenue and
acceptable financial ratios
Practically to find all above is not easy and if, it will result in multi-bidder, so The
acquisition team must have a clear idea of how each targeted company will
complement the buyer’s strengths and/or mitigate its weaknesses.
4. APPROACHING A COMPANY THAT IS NOT FOR SALE.page.66
a. Introduce yourself, give high level data and inform why you target it to
consider you as credible buyer.
b. Request a formal meeting to demonstrate your purpose
c. Follow up the target regularly even the target insists not to sell
5. DEALING WITH THE SELLER’S MANAGEMENT TEAM
If you as a buyer is going to retain the key managers, you should communicate
with them and alley(! )تهدئةtheir concerns. And answer below questions:
a. What will be the manager’s role and how much he will be paid?
b. What is the direction of combined companies after acquisition?
c. What are expected changes after acquisition?
Communicating your vision and your performance expectations early on is critical to
obtaining management’s commitment.
So the buyer should explain potential structure changes and identify benefits plan and
bonus scheme and may Provide employee contracts to key members of the management
team.
6. DIRECTORY OF M&A RESOURCES FOR PROSPECTIVE
BUYERS (AND SELLERS
International Business Brokers Association (IBBA)
401 North Michigan Avenue
Suite 2200
Chicago, IL 60611
(888) 656-IBBA
www.ibba.org
[The IBBA also publishes the M&A Source Membership Directory,
which lists hundreds of mergers and acquisitions professionals and
intermediaries. http://www.masource.org/.]
Association for Corporate Growth
71 South Wacker Drive
Suite 2760
Chicago, IL 60606
(877) 358–2220
www.acg.org
International Network of Merger and Acquisition Partners (IMAP)
6000 Cattleridge Drive
Suite 300
Sarasota, FL 34232
(941) 378–5500
www.imap.com
American Society of Appraisers (ASA)
555 Herndon Parkway
Suite 125
Herndon, VA 20170
(800) 272–8258
www.appraisers.org
Directory of M&A Intermediaries
http://www.moneysoft.com/Directory-of-M-A-Intermediaries
Mergers Unleashed
One State Street Plaza
27th Floor
New York, NY 10004
(888) 807–8667
http://www.mergersunleashed.com
[Combines the resources of Mergers & Acquisitions Journal and
Mergers & Acquisitions Report.]
Mergers & Acquisitions: The Dealmaker’s Journal
1100 Dexter Avenue North
Seattle, WA 98109
(206) 676–3802
http://www.nvst.com/pubs/maj-pub.asp
[Founded by M&A expert Stanley Foster Reed in 1965; a division of
NVST.]
World M&A Network
1100 Dexter Avenue North
Seattle, WA 98109
(206) 676–3802
http://www.nvst.com/pubs/worldma-pub.asp
[A quarterly publication listing hundreds of companies for sale, merger
candidates, and corporate buyers; a division of NVST.]
National Association of Certified Valuation Analysts (NACVA)
Parnell Black, Executive Director
1111 Brickyard Road, æ 200
Salt Lake City, UT 84106–5401
(801) 412–7200
http://www.nacva.com
Alliance of Merger and Acquisition Advisors (AMAA)
Mike Nall, Executive Director
150 North Michigan Avenue
Chicago, IL 60601–7553
(312) 856–9530
http://www.amaaonline.com
Middle Market Investment Bankers Association (MMIBA)
Dennis Roberts, Chairman
1111 Brickyard Road, æ200
Salt Lake City, UT 84106–5401
(801) 412–7200
www.mmiba.com
