Deal Process

Overview

The M&A process involves structured steps to facilitate transactions, ensure fair negotiations, and mitigate risks for buyers and sellers. Each phase requires specific documents and deliverables to advance the deal.

Sell-Side M&A

Role of the Sell-Side Banker

  • Objective: Help the seller maximize value and ensure smooth execution.

  • Key Responsibilities:

    • Identify potential buyers and assess their financial strength (cash or stock).

    • Conduct due diligence and prepare a virtual data room for information access.

    • Create marketing materials: Teaser and Confidential Information Memorandum (CIM).

    • Address regulatory and compliance concerns (e.g., antitrust issues).

    • Assist in negotiations, including preparing fairness opinions and assessing bids.

M&A Documents

Document Sequence in the Sell-Side Process

  1. Teaser (First Round):
    • The first document shared with potential buyers.
    • Provides a brief, high-level overview of the target, investment highlights, and basic financials.
    • Designed to gauge initial buyer interest.
  2. Confidentiality Agreement (NDA):
    • Sent after the teaser to ensure non-public information is kept confidential.
    • Must be signed by interested buyers to access the CIM.
  3. Confidential Information Memorandum (CIM):
    • Distributed after the NDA is signed.
    • Provides a detailed description of the target’s operations, financials, market position, and growth potential.
    • Typically 50+ pages, this document requires significant preparation.
  4. Indication of Interest (IOI):
    • A non-binding letter from buyers, submitted after reviewing the CIM.
    • Includes a preliminary valuation range and transaction terms.
    • Used to shortlist buyers for the second round.
  5. Letter of Intent (LOI) (Second Round):
    • A non-binding agreement that outlines the structure and intent of the deal.
    • Provides exclusivity for the buyer to complete due diligence and negotiate terms.
  6. Definitive Agreement:
    • The final, binding agreement specifying the transaction terms.
    • Includes conditions precedent, representations and warranties, indemnifications, and consideration.

Round Process

First Round

  1. Preparation:
    • Create the teaser, NDA, and CIM.
    • Define the buyer universe and perform a preliminary valuation analysis.
  2. Execution:
    • Share the teaser with prospective buyers.
    • Execute NDAs with interested parties.
    • Distribute the CIM and an initial bid procedures letter.
    • Receive Indications of Interest (IOIs) from buyers.
  3. Selection:
    • Evaluate IOIs to identify buyers within the seller’s expected valuation range.
    • Shortlist buyers for the second round.

Second Round

  1. Preparation:
    • Organize management presentations and site visits.
    • Provide comprehensive data room access for detailed due diligence.
    • Draft the definitive agreement for review.
  2. Execution:
    • Distribute final bid procedures letter.
    • Receive final bids, including financing details and “best and final” offers.
  3. Finalization:
    • Negotiate and finalize the definitive agreement with the selected buyer.

Due Diligence

Objectives

  • Validate target information and uncover risks or opportunities.

  • Identify leverage points for renegotiation or integration planning.

Areas of Focus

  1. Operational: Verify business operations, key assets, and contracts.

  2. Financial: Analyze historical and projected financials, liabilities, and cash flows.

  3. Market: Assess competitive position, market share, and growth potential.

  4. Legal and Regulatory: Ensure compliance, resolve litigation risks, and identify antitrust concerns.

Purchase and Merger Agreements

Key Components

  • Consideration:
    • Defines price, payment type (cash, stock, or contingent), and adjustments (e.g., working capital).
  • Representations and Warranties:
    • Ensures accuracy of the target’s information, including financials, assets, and compliance.
  • Covenants:
    • Details restrictions during the interim period (e.g., no new contracts or dividends).
  • Conditions Precedent:
    • Specifies requirements for closing (e.g., regulatory approval, no material adverse changes).
  • Indemnification:
    • Protects buyers post-closing against breaches or misrepresentations.

Acquisition Structures

Asset Purchase

  • Buyer acquires selected assets and liabilities.

  • Common in private transactions to minimize unknown liabilities.

Stock Purchase

  • Buyer acquires shares directly from shareholders.

  • Full ownership can be difficult due to minority shareholder rights.

Merger

  • Combines two entities, transferring all assets and liabilities to the buyer.

  • Easier to achieve synergies compared to stock purchases.

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