Date11 Nov 2021
Once you have identified a target, considered as much as you can from strategic, financial and cultural perspectives, and had an initially positive response to an approach, the process to seek to reach a mutually acceptable position starts. Katherine Broadhurst, partner at Azets explains.
Internally, the Buyer should agree a team who would work with the external advisors on the transaction, as well as the parameters (maximum value, other principles of engagement) for the deal. This ensures appropriate and effective delegation whilst business carries on as usual.
Once an NDA is in place and headline financials and/or an information memorandum have been provided by the Sellers, commonly the two parties meet to further explore this information, but, potentially more importantly, better understand each other’s motivations and underlying compatibility. Many Vendors are not purely financially motivated and demonstrating your understanding of the target company’s ethos, how it aligns to yours and your intentions going forward, showcases your company as a suitable fit for theirs going forward.
If this meeting goes well, the Buyer will likely want more detailed information to put forward an offer so they can be confident in its rationale. There is a balance over what type and detail of information to request, and there will often be something on the ideal list that the Vendors will not want to provide. This is the first part of the negotiation depending on its relative importance to a Buyer’s process.
Both sides will have a view of value and understanding motivations, whether ultimate value, structure of upfront against deferred, ongoing involvement or other, helps a Buyer in seeking to put forward an offer the Vendor will at least consider. Explaining the rationale for the financial element of the offer will provide the Vendor with reassurance that the Buyer is not wasting their time, and hooks from which they may seek to negotiate.
Setting out the non-financial matters, even in principle, provides points of difference between bidders (should there be more than one) to provide further areas of negotiation should the financial aspects be acceptable, or close thereto. Whilst Advisors can assist with the financial calculations, provide a view of value and structure, only the Buyer can fully understand the potential operational benefits.
Any acquisition is a big decision, so it is important to know the limits of what is acceptable to you and not be concerned about walking away if it is not right. Making the conditions of any offer clear in terms of required financial parameters also sets the scene for due diligence. Given that both parties will discuss any offer with their Advisors, positive relationships between the Advisors and the companies involved will help the process run smoothly and you are more likely to secure open and honest answers. Furthermore, any acceptance is more likely to proceed to completion as expectations are set early and both parties enter the process with eyes open.
The time this initial stage takes will be different for every transaction, but it is the tone of the interactions that is a more important indicator for the rest of the process. Therefore, it is important to set the groundwork and have the right support to provide the best chance of progressing successfully.
If you wish to discuss how we could assist you with acquisitions, please contact Katherine Broadhurst, Partner, Azets on 029 2054 9939 or Katherine.Broadhurst@azets.co.uk