What is the buy-side of M&A and what does it involve for a company?
If you’ve identified buy-side growth as the next logical step to expand your business, then no-doubt, many a conversation has already been had on the benefits.
Here’s a quick outline of how the buy-side M&A process gets underway. It divides into multiple phases:
1. Investment thesis
Quite simply this is a description of what you want to acquire. It includes: how large of a business (in terms of revenue and valuation); what products or services, customer segments and locations does the target have; and how will you integrate the acquisition with your current operation?
2. Target identification and engagement
A target business to buy is identified and approached for a possible sale. If your, and the potential acquisition’s interests align, preliminary discussions can start.
3. Preliminary diligence, valuation, and indication of interest
The acquisition’s financials first need to be analyzed, and initial due diligence is conducted to determine a business’s value for purchase. Once a value is set, you can formally submit an ‘Letter of Intent’ (LOI).
4. Final diligence
Further, more detailed due diligence is conducted with the potential acquisition, which will include the securing of necessary finance and last-minute negotiations.
5. Closing and integration
When everyone is happy and aligned, definitive documents can be submitted, and the finalization of the purchase can happen. Then the fun begins with having the two businesses come together as one to achieve success together.
What are some key considerations when looking at potential deals?
In order to start the above set of processes, buy-side M&A can be unpacked as a ladder of simplified steps. These steps – in the initial stages of an acquisition – must be taken into consideration before the intricacies of buy-side M&A can start. Here’s what to consider:
- Making a list of potential acquisitions – a long one
Make sure there’s a purpose to the merger. So, make a longlist of companies that align to your vision via their place in the market, and go from there.
Make contact with the businesses on your list as an initial ‘testing of the waters’. Some will have no interest in selling. Other’s will have exorbitant pricing requests. And yet others still may be unfit, in terms of their inner-workings, culture and finances. So, try and learn as much about your potential targets, and then begin making the longlist, a shortlist.
The learnings from the step above will help you here. Remember, much may only be discovered about the target during due diligence. But you know why you’re looking to acquire, so use your moxie, and a touch of that business savviness that has gotten you this far, to make your decision.
At this stage of the game, you’ll know what your potential acquisition may want from the deal. So, if it aligns, make an offer via an LOI – it’s non-binding, will detail the proposed deal structure and will set all parties in good stead for a happy transaction going into due diligence.
Due diligence can’t be rushed. Here is where a buyer can look intrepidly into a window that essentially magnifies a potential acquisition’s inner workings. How are the finances and management team? What are the legacy issues? Do values and cultural ways fit with yours strategically and seamlessly. Here’s where it all comes to light – take your time.
If all is well at this stage, now it’s time for the close – signing of documents, transferred money, announcements – this is where rubber meets the road with detailed contracts, so the business essentially, can begin to change hands.
The role of advisory in M&A transactions
If you’ve read this far, but now have the echoes of terms like buy-side growth, buy-side due diligence and buy-side contracts ringing rudely in your mind, there’s no need to fret, second-guess or reread. Destined is your buy-side growth facilitator. Your M&A journey is our journey, so we’ll be with you through every phase and every consideration, and we’re poised to help make this one the most valuable purchases of your career.
Contact Destined now.
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