Pre-Deal Prepping With An M&A Expert - News

For 20-year M&A veteran James Rees, founder of mid-market M&A advisory firm Eaglehawk Advisory, extensive pre-deal planning is essential and will help with executing a controlled process while providing greater transaction certainty. Rees says the planning phase can be split into two parts: idea generation and preparation.

Idea Generation

Idea generation is all about the big picture. “It’s understanding who your client is and what their strategic objectives are”, says Rees. He believes there needs to be a clear understanding of a client’s motivations: do they want to expand geographically? Do they want additional products or distribution channels? Do they want to acquire a competitor to secure market share? Should they divest an asset or a division that is not providing adequate return on capital?

For Rees, idea generation, whether it’s a buy-side or sell-side transaction, is about creating value by identifying a range of targets aligned with the client’s strategy and how to best structure and execute the transaction.

Rees says there needs to be a very thorough analysis of the proposed transaction to ensure the deal is ‘value accretive’ for shareholders and any execution issues are appropriately considered – for example, regulatory approvals. For buy-side roles, merger integration synergies also need to be planned for, particularly around information technology, culture and human capital.

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Preparation

After idea generation comes preparation. This phase, which can take a couple of months to complete, has varying activities depending on whether you are buying or selling a company. They generally include:

• Confirming preferred transaction structures
• Tax and legal structuring
• Regulatory planning (e.g. where there are foreign investors, competition issues)
• Consideration and appointment of other advisors (e.g. Due Diligence experts, legal team)
• Extensive project planning and assignment of roles for advisors and company staff
• Development of a detailed timetable
• Preparation of marketing information
• Potential drafting of legal documents
• Detailed assessment and agreement on the target list
• Preparation of the virtual data rooms
• Project management planning
• Develop communication strategies

Rees says that larger, more sophisticated companies generally have a better idea of what needs to be done prior to a deal. The CFO, COO or advisory boards with prior M&A experience within the company tend to have a pre-conceived notion that’s already been internally tested.

For small organisations, Rees says that while they might have a reasonably good idea, this will likely be the first transaction they have considered and they won’t have the internal resources or appropriate experience to analyse the situation to the extent they need to. “That’s where a banker can add the most value, assisting them to come up to speed and work out what direction they should take.”

Get on the same page

During the preparation phase, advisors (lead bankers, lawyers, accounting, specialists) and members from the company team would have been working together to structure the transaction and prepare marketing and other transaction documents for the virtual data room.

The issue is that sometimes teams may not have been as integrated as you would expect. Rees says it’s always a good idea to bring the senior leaders from the advisors and senior members from the company (CEO, CFO, divisional heads, corporate development etc) together for a team meeting to ensure everyone has been fully briefed before entering the next phase of the deal. “This could include an update on any issues, understanding of roles and protocols and review of the timetable.” Selective members of this team would then continue to meet as a project management team on a weekly basis, or as needed, to monitor progress and resolve issues during the execution phase of the transaction.

The 6 P’s

Both the US Marine Corp and the British Army have a saying. It’d called the 6 Ps: Prior Preparation and Planning Prevents Poor Performance. (Some readers will know a version with 7 Ps but we’ll keep a level of decorum here).

It’s an adage that fits just as well within the battlegrounds of M&A. For Rees, taking the time up front to understand the growth strategy, business pains and succession plans pays off in the long term, as does a bit of devil’s advocate role-play. “If something does happen in the business, you already know what the value of the impact might be. You don’t have to think about it when it happens because you’ve already pre-planned.”

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