How it has changed and where are we headed in the future?
As advances in technology are made, the M&A process has kept pace with fewer physical interactions required than five or ten years ago.
There is no doubt however, that physicality - the predominance of in-person contact as distinguished from virtual and digital exchanges - continues to play an important role in buyer and investor confidence around talent and assets, and also impacts investment decision making and process.
Across both classes of deals (people intensive and asset heavy) we can broadly divide the process into three stages - preparation, marketing and execution. Many of the key work streams and characteristics of these processes are very similar with timings generally anywhere between three months and a year.
This phase is always bespoke to the business or asset with significant work around strategic positioning, scripting of the opportunity and marketing materials including a ‘teaser’ document, fuller information memorandum and process letter for buyers and investors.
Preparation is key to a successful process and some clients will be more ‘deal ready’ than others. Client/advisor interaction levels will be high but pre-Covid, a good proportion of this work was conducted virtually through e-mail correspondence and video calls.
The importance of the relationship build between client and advisor through this preparation phase should not be underestimated.
This second phase generally involves the most F2F interactions with advisors, vendors and investors. Data room and diligence preparation is currently run remotely so we do not see a big impact on this process.
The marketing stage starts with approaches to all selected buyers and investors. Often the first stage of these conversations with select parties will have been held informally in the preparation phase.
One technique we will be utilising as part of the approach process for people intensive businesses (once we have an appropriate NDA in place) will be to record a ten minute video introduction to the management team to sit alongside the more factual information memorandum.
Asset visits, physical diligence and F2F meetings with target management are clearly the three areas of the marketing process that are being the most disrupted by distancing requirements. In some of our deals, making up for these disruptions has required fresh thinking and a willingness from all parties to make certain mitigated allowances. We have now come up with alternatives to solve the lack of physicality which we present later in this article.
As buyers and investors approach bid deadlines they will need further access to the team and assets which must be managed well and tightly by advisors.
The marketing phase ends with agreement of an acceptable deal. There will be rounds of offers and negotiations largely handled by the advisors but, once again, the lack of F2F interaction entails a more structured and agenda driven process through remote contact.
The final stage of the process covers the due diligence and negotiations around commercial aspects of the deal and legal drafting through to a successful closing. Due diligence is often conducted in asset sales pre-bids in the marketing phase on the previous page.
A large amount of the diligence and negotiations at this stage will be marshalled by advisors, with diligence requests fed through the data room, and video conferencing utilised as often as practical. It is so important to maintain momentum gained through a tight and controlled marketing phase that has delivered genuine competitive tension.
A good proportion of people intensive transactions are structured with deferred payment or earn out mechanisms.
This makes the integration planning phase in both classes of deals (but particularly around people intensive deals) key and requires careful scripting and planning with F2F video conferencing utilised regularly. Successful deals for buyers and sellers are carefully planned and executed with realistic and actionable 100-day plans.
Clearly planning around this integration process and, equally importantly, earn out maximisation must be prioritised.