M&A Video Series: PREPARING A COMPANY FOR THE M&A PROCESS | MAINTAINING BARGAINING POWER DURING THE M&A PROCESS
CEO'S IMPORTANT ROLE IN THE M&A PROCESS | DUE DILIGENCE DURING THE M&A PROCESS
Maintaining Bargaining Power During the M&A Process
George P. Shenas, Esq. hosts Phillip L. Currie, Managing Partner of Shoreline Partners, LLC
Part I: Driving Up Enterprise Value in a Down Market
George asks Phil how an investment banker helps sellers deal with a down market. Phil describes his role in an M&A transaction, including normalizing or recasting the financials, as well as finding and evaluating the “magic” of the company. Phil emphasizes looking at the future potential of the company, not its past performance, when marketing a company. The key to marketing an M&A transaction successfully, therefore, is determining the capabilities of your company in the hands of the right buyers with greater financial and distribution strengths, and then convincing such buyers that your determination is correct. Phil shares his perspective on a marketing paradox: buyers seldom are purchasing that which the sellers think they’re selling – when selling your company, the business itself is the “product,” not the product your business happens to be producing.
Part II: Put the Seller in Control Using an M&A Auction Process
George and Phil discuss how sellers can manage the M&A process and create leverage through the “auction process,” to improve price and terms of sale by having buyers bid against each other through a “blind” bidding process. Phil lays out his philosophy that a seller can best preserve value in a competitive environment, and the seller shouldn’t establish a ceiling by announcing an “asking price.” Furthermore, during the due diligence process, it is critical to keep secondary bidders with inferior initial offers on “stand-by” – Phil believes that by using a stalking horse, the primary bidder is more inclined to negotiate reasonably, and the seller doesn’t need to start over from scratch if the primary bid falls apart before closing.
Part III: Use your Investment Banker and Legal Counsel Properly, Freeing you to Focus on your Business
George and Phil agree that it is in the best interests of the seller that the investment banker and legal counsel work two separate channels of communication with the buyer and its agents. Sellers often run the risk of becoming myopic, bogged down in the transactional details. Speaking from experience, George and Phil also agree that nothing is more important for the seller, to avoid price erosion, than “making the numbers” during the M&A process. It is critical for the seller to be focused on operating the business successfully – the investment banker and legal counsel play an important role in keeping the process on track by managing the due diligence process, as well as guiding the negotiations, for the seller. Phil shares his views on the utmost importance of maintaining confidentiality during the M&A process. Finally, when the transaction closes, take the time to celebrate (which coincidentally helps ease the transition of control from the seller to the buyer)!