How to sell at the optimal price
Twelve techniques leading to four deliverables for owners
Owner toolbox
Deliverables
We call this the ‘optimal deal ecosystem’ where everything we do is designed to produce interconnecting benefit flows to lead to concrete deliverables which together lead to obtaining the best deal from the best partner. Few firms connect their actions throughout the M&A process to deliverables that feed into goals in this scientific way. As practitioners of ‘advocacy M&A’, there is nothing we do that has not been reverse-engineered to result in our owner client’s advantage.
THINKING
LINKING
More deal flow
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12
With lower risk
Optimal transaction
Recommendations grow out of evaluation. We develop an M&A strategy through an iterative process with participation of client’s senior management.
The primary goal is to determine partner parameters and then translate this into a scoring system for companies.
1. Strategic thinking
The twelve tools of Thinking and Linking
Our 12-step process is designed to give our client the advantage in obtaining an optimal transaction through a combination of strategic challenges, better selection of potential partners, presenting the opportunity strategically to each, and providing project management, evaluation and negotiation skills till its completion.
We believe that before contacting any partner, it is critical to try to identify every partner in the market that could satisfy the need. We call this our 'Total Universe' approach.
We only exclude companies when we have sufficient info to know that they will not be suitable to be the partner of client.
2. 'Total Universe' attitude
3. Partner scoring
We start the process of prioritising partners based on how closely they satisfy the need of client from the initial info we have available. We often use traffic light system to indicate the likelihood of a deal with each partner company.
Prioritisation is always an iterative process based upon 3 factors: 1) new info we obtain about partners during the deal process, 2) from comparing the relative suitability of different partners, 3) sometimes client changes the criteria of the ideal partner.
Example of completed Partner Scoring Matrix
4. Client 'Beauty'
A well-presented client will be more attractive to partners, resulting in more interest and better sale/merger terms. We improve the presentation of client by:
'Beauty' Checklist
5. 'Opening the door' skills
We pride ourselves on being able to open a high percentage of doors using a combination of determination (not giving up) and creativity (finding solutions to catching partner companies’ interest) and persuasion (a range of techniques we have developed to persuade companies to let us have an exploratory discussion with them).
We put particular emphasis on persuading partners which seem to have a good strategic fit even if they are at first unwilling to enter discussions.
Determination
Creativity
Persuasion
We brainstorm potential synergies we could expect in the market and develop a plan with client on how partners will be evaluated for likely synergy richness to look for as the process goes on.
6. Synergy evaluation
Possible partner types and synergy directions
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We start the linking process by following a 1-on-1 approach where the focus is on developing a close trusting relationship with each partner company and also working with them on a tailored basis that takes into consideration their individual attitude, worries, goals and timings.
This approach starts from the first contact and runs through the entire linking phase through to signing the LOI and to completion.
7. 1-on-1 techniques
Eight magic ingredients in 1-on-1 M&A
Note: In 1-on-1 M&A the owner is not a seller or even necessarily wants to be a seller at the start of the process. That’s why we use word owner rather than seller until the deal completes.
Joint Business Planning is the best way to investigate whether a partner has a strong strategic fit, allowing us and our client to start quantifying the impact synergies may have on the partner’s pro forma EBITDA. Having this information prior to negotiation allows us to show the counter-party their upside and demand a better valuation.
In cases where the seller will be offered upside based on the synergies, JBP allows us to quantify the upside being offered.
JBP also has the by-product value of being an early view of the cultural fit between management teams.
8. Joint Business Planning
We hold the six keys to a successful economic negotiation:
- Have enough good partners we would accept and who want to proceed
- Getting the timing right
- Constant comparison and counter-proposing with support of comparison model recognizing the 'apples & oranges' nature of offers
- Comprehensive discussion of terms
- Negotiation skills
- X factor
9. Economic negotiations
Example of Economic Comparison
It is conventional that the acquirer or larger company makes the offer and therefore feels it has the right to draft the LOI. This is not necessarily in the interest of the owner, so we either take the initiative and agree we will produce the LOI draft or, as a minimum, engage actively and promptly with a redraft. The point is not to allow the counter-party to feel they are in control of the process.
We also have a policy that there must be a very detailed LOI, where all of the critical economic points and other key elements are addressed before having a handshake agreement, and then they should be incorporated into the LOI. This is because these important ‘side elements’ can be very hard to agree later while it is much easier to agree them when the counter-party ‘wants’ to capture the deal. We therefore hammer out these points before or during the LOI drafting process. It makes the later document SPA negotiation much easier and also can protect against the deal failing due to disagreement on such issues.
10. LOI drafting
Post-LOI is not just paperwork because a reasonable percentage of deals that are agreed at LOI doesn't make it to the finish line.
Our philosophy is that if a deal isn’t good for our client they obviously should not enter into an LOI in the first place, so if an LOI has been signed it means it’s a deal of value. On that premise, we don’t want to lose a deal we have got this far and our driving goal at this point becomes to complete the deal before ‘the wind changes’.
Given that time is the enemy of completion, we push the process forward as fast as possible. We also deploy our Transaction Loss Mitigation methodology, which is a checklist of about twenty common pitfalls, to identify them before they might happen and work to get the deal across this ‘mine field’.
As issues invariably come up in due diligence and SPA negotiation, we work to protect the LOI terms negotiated in tandem with our client’s M&A-specialized law firm, which we can also introduce as required.
11. Post-LOI and project management
12. Rescue
We are experts not only in deal-making but also in 'deal-saving', which is often just as important because losing a deal at the end is worse than not agreeing one at the beginning. Frequently, a deal is lost because of what we call 'the 3 Fs' — fickleness, fatigue and fighting.
Fickleness and fatigue are best countered by keeping the pace post-LOI to try to reach completion before the 'wind changes'.
In addition to protecting against these common dangers, we deploy our 'Transaction Loss Mitigation' methodology which consists of a checklist of around 20 inter-company and external events that can derail a deal.
We can rescue with negotiation skills or creativity and a philosophical approach to disagreement, enhanced by our position as a third party.