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
- 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.
- The first document shared with potential buyers.
- 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.
- Sent after the teaser to ensure non-public information is kept confidential.
- 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.
- Distributed after the NDA is signed.
- 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.
- A non-binding letter from buyers, submitted after reviewing the CIM.
- 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.
- A non-binding agreement that outlines the structure and intent of the deal.
- Definitive Agreement:
- The final, binding agreement specifying the transaction terms.
- Includes conditions precedent, representations and warranties, indemnifications, and consideration.
- The final, binding agreement specifying the transaction terms.
Round Process
First Round
- Preparation:
- Create the teaser, NDA, and CIM.
- Define the buyer universe and perform a preliminary valuation analysis.
- Create the teaser, NDA, and CIM.
- 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.
- Share the teaser with prospective buyers.
- Selection:
- Evaluate IOIs to identify buyers within the seller’s expected valuation range.
- Shortlist buyers for the second round.
- Evaluate IOIs to identify buyers within the seller’s expected valuation range.
Second Round
- Preparation:
- Organize management presentations and site visits.
- Provide comprehensive data room access for detailed due diligence.
- Draft the definitive agreement for review.
- Organize management presentations and site visits.
- Execution:
- Distribute final bid procedures letter.
- Receive final bids, including financing details and “best and final” offers.
- Distribute final bid procedures letter.
- 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
Operational: Verify business operations, key assets, and contracts.
Financial: Analyze historical and projected financials, liabilities, and cash flows.
Market: Assess competitive position, market share, and growth potential.
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.