CFO Memo: Preparation Key To Successful M&A

Chief financial officers are blunt in their advice to their counterparts on deals: prepare, prepare, prepare.

By ansaradaMon Dec 14 2015Virtual Data Rooms

CFOs interviewed by ansarada say ideally a company should take at least a year to prepare for a sale. Dow Chemical CEO Andrew Liveris said the company's board had been examining a merger with DuPont for 10 years. So how do you, as a CFO, prepare your company for a sale?

Step one: think about your pitch to a potential buyer

Why have you decided to sell? It can't just be because you are tired of running the business. Your story must appeal to potential buyers. If you are a $50 million annual revenue company, perhaps your sale story is that the company needs someone with the skills and experience of managing a much bigger business that can help take the company to $500 million of annual sales.

Step two: assemble a deal team

A CFO needs to have an overview over the entire M&A process. A team drawn from finance, human resources, legal and other important departments can be assembled if the CFO is in a large company. Often a large company will have made preparations together with investment bankers and or lawyers to execute the sale of the company. But in a smaller company, often the CFO and CEO are left to do the entire transaction themselves with an outside adviser. That's why the choice of a right adviser is crucial, say CFOs. "Always look at their experience, their track record, their achievements which they are never shy telling you about," a CFO told ansarada when asked how they choose their M&A adviser. "But you have got to make sure the adviser has done relevant, recent work in the market. Ultimately choosing an adviser such as an investment banker is about a personal connection."

Step three: collate your document

One CFO told ansarada that they spent 15 months collating documents before they began to entertain approaches from potential bidders. In some cases, the documents required by the buyer may need to be created from scratch. "In many parts it was mind numbingly tedious to prepare so much information to be able to be ready for any inquiry," says the CFO. "But it paid dividends as it meant the preparation ensured we kept to our own time frame instead of someone else’s."

Step four: know your virtual data room

A CFO used their investment bankers, experienced data room users, to set up the data room for the sale of the company. The CFO and his small team submitted information, after checking and re-checking the information, to the bankers who helped decide on the filing structure of the data room and helped input data into the data room. An investment banking analyst was in charge of the data room set up, the filing structure and the input of documents. A CFO can learn about how to use a data room direct from the data room provider. Being able to determine the bidders who are serious and who are not is critical for the seller. The data room can give you an idea of this, says one CFO. "You can tell who is serious about buying your company by seeing who is spending time in the data room by their volume of activity,” says the CFO. “Who has looked at what? Are their lawyers and accountants involved? If they are, they have a mandate to try and get the deal done as that means hundreds of thousands of dollars in advisory fees."    

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