Buy-Side Mergers and Acquisitions



Strategic Growth through Buy-Side Mergers and Acquisitions

How to run an effective buy-side Mergers and Acquisitions process and close a deal.

Identifying, contacting, building a rapport based on trust, confidentiality and professionalism is a challenge to say the least.  So how do acquisitive organizations, private equity groups and other buyers make it happen?  A thoughtful approach to connecting with prospective sellers and a clear understanding of how to get a deal done. Nobody wants to invest a ton of time if both sides aren’t on the same page. The hardest part of the buy-side Mergers and Acquisitions process?

Establishing common ground between buyer and seller to have a meaningful dialog about the potential for strategic opportunities and the creation of a whole greater than the sum of its parts. Start with a Buy-Side Mergers and Acquisitions Integration Playbook.

Establish common ground

As a buyer it is important to establish common ground with prospective targets to have an effective discussion. What does this mean? First provide some background on the acquiring company. This should include references to years in business, revenue scale, number of employees, brand recognition, etc. Second, share what target characteristics are most important to you. Third, share your M&A experience and provide a Confidentiality / Non-Disclosure Agreement to build confidence. Lastly, point out the KPIs and other accretion minimums you are looking for. Then you can ask them for financial and other confidential information.

What are your acquisition criteria?

What are your basic acquisition criteria? The fundamentals? Identifying the specific characteristics of an optimal acquisition target is the first step in an effective buy-side mergers and acquisitions strategy. The following could be a good place to start:

  1. Industry
  2. Geography
  3. Duration
  4. Revenue
  5. Earnings
  6. Asset Scope
  7. Proprietary Technology
  8. Market Share
  9. Growth Outlook
  10. Transferability

Ascertaining the facts to establish target suitability are the first step in business valuation.

How you request information is a very important consideration. Have a complete checklist prepared to provide the prospective seller up front. Being organized is another way to build confidence that you know what you are doing and won’t waste time.

If you are a prospective seller and want to maximize value, understanding the sell-side M&A process is for you. The more you understand the sell-side M&A process, the more you will understand the buy-side Mergers and Acquisitions process. Buyers must be confident in the quality of the information they rely on for valuation, synergies assessment and post-merger integration.

Related: The Purpose of a Confidential Information Memorandum

Successful acquisitions are integral to establishing realistic goals, making informed decisions and weighting valuation versus future risks.  Our commitment to accuracy, shareholder support and value appreciation are unparalleled in the middle market.

Set Standards

The best decisions are borne from full disclosure. An accurate assessment of the risks and rewards associated with an acquisition target is key. There are many possible outcomes and the more time invested in the buy-side M&A process may make it harder to walk away.  One suggestion? Start with an Alignment Map to make an accurate assessment of a target’s operating performance. Moreover, use an Alignment Map on every target as your standard assessment tool.

For the motivated, committed and informed buyers and sellers, an efficient preparation time makes sense to ensure quality information and participation of all qualified targets.  Moving to negotiations quickly enhances confidentiality and improves communication.

Industry Research

Once you have stress tested your target acquisition criteria and have confirmed they exist, you must create a list of prospective targets. Preferably in an integrated CRM to accurately track progress. You can’t afford to get your wires crossed when running an effective buy-side mergers and acquisitions process.

Having a well researched list of prospective sellers to approach will maximize the value of your time. Having a clearly designed process prepared in advance will save time. This includes preparing email scripts and call agendas ahead of time. Owners who aren’t sellers at this time may be at some point in the future. Impress them with your industry knowledge and professionalism now and you may be their first call when it’s time. CapitalIQ is a great research platform.

Sourcing Viable Acquisition Targets

You can’t afford to waste time when sourcing viable buy-side mergers and acquisitions targets. It’s a competitive market out there and most likely every business you contact has already been approached by other buyers. So you have to stand out as the best buyer to make genuine progress.

Buy-Side Mergers and Acquisitions Process

Following a precise buy-side mergers and acquisitions process is the only way to effectively identify a target of choice (“ToC”), accurately value the target and prepare an appealing Indication of Interest (“IoI”) that will open an effective dialog on valuation, structure and other expectations. Only when this happens will you get to the Letter of Intent, which should give you exclusivity and enable you to begin due diligence.

What’s due diligence? It’s the process whereby the buyer can validate the information provided by the seller. It means you need to know what to ask for in your information request. This is your due diligence checklist, and you have to know what you’re looking for and what it means relative to the industry.


Industry Specific Key Performance Indicators

Industry specific key performance indicators are the best way to gauge the health of the target, accurately value the business and structure the transaction to mitigate against future risk. This is also how to identify achievable synergies.

Related: Buy-Side M&A Strategy: Financing an Acquisition

A Key Performance Indicator is a measurable value that shows the progress of a company’s business goals. KPIs indicate whether an organization has attained its goals in a specific time frame.

While financial analytics are applicable to every organization, relevant KPIs vary by industry. In every line of business there is some sort of metric that someone uses to gauge how they’re performing and whether to judge success or failure.

The metrics that you measure and track depend completely on your organization’s goals and objectives. First ask yourself what it is that you want to achieve. Next, consider how you can measure the progress towards your goals.

A Key Performance Indicator is the number that shows whether you’re getting closer to your goal or if you’re not making adequate progress.

Descriptive? Diagnostic? Predictive? Prescriptive? Yes, here’s a strategy to select and test a relevant business analytics strategy using each and every relevant Key Performance Indicator (KPI) for your company. But what are they exactly? Which Key Performance Indicators are right for you?

Related: Which Key Performance Indicators are Right for You?

Target Suitability & Valuation Analysis

Target suitability and valuation analysis is a step that must be documented. It will provide you the opportunity to double check acquisition rationale characteristics against data during due diligence. Preparing a written valuation including historical analytics, financial projections, discounted cash flow, comparable company and comparable transaction analyses.

Understand Valuation

Once you have established your upper and lower limits on target business valuation you can prepare an Indication of Interest that will demonstrate your approach to the fundamental elements of a deal.

The Indication of Interest

The Indication of Interest is a significant benchmark for the buy-side. It will determine whether or not you move forward with negotiating a possible M&A transaction. To be effective your IoI will have to include the following:

  1. Valuation and Form of Consideration
  2. Structure and Source of Funds
  3. Selling Shareholder Rollover and Go Forward Role
  4. Due Diligence and Timing
  5. Conditions and Approvals
  6. Contact Information
  7. Other Considerations

Exclusivity & Due Diligence

Exclusivity & Due Diligence are another major phase of the buy-side M&A process. Exclusivity means you are the only active buyer for a specified period of time. That time is the agreed upon Due Diligence period which typically lasts between 30 and 60 days, depending upon the nature of the information and what role it plays when it comes to the final business valuation the transaction will close for.

Running an effective Due Diligence process is a topic for another post.

Closing the Deal

Closing the Deal and funding the transaction is obviously the ultimate goal. If you carefully follow each of the above steps you will dramatically boost your chances of closing the deal. There are no shortcuts. Attempting them will backfire.

ALIGNMT LLC engages in asset based transactions, not securities transactions in compliance with the SEC’s M&A Broker rules.

Have a question? Let us know what’s on your mind.



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