Keys for a successful M&A operation (Part II): Valuation, structure and negotiation.

  • Negotiation is critical in the closing process of any corporate transaction. It is an iterative process, whereby the advisor and seller approach positions and positions, from a generic starting point such as “let’s see if the operation as a whole makes sense” or “let’s see if this operation can be done” . The negotiation is present at all times of the process, including the Letter of Intent, discussion about Due Diligence, the valuation and structure of the operation until the sale contract.

    For any negotiation process in a corporate operation, an experienced advisor / dealmaker will take into account:

    Being prepared is an essential element to achieve success and it will require all the parameters of the potential operation, understanding from the market or industry, comparable transactions and their multiples, legal issues, competition, apart from the company itself. A key element is to understand what is the real motivation of the seller and his commitment to the operation.

    Establish the valuation range and the price among the multiple methods of valuation of companies, from the discount of cash flows, multiples of transactions or comparable listed companies. But undoubtedly a factor such as the strategic fit in the organization, identification of operational, commercial or technical synergies are fundamental, so that the investor establishes a price. No operation is the same as another, the trading environment is different and strategic aspects tend to vary. An expert advisor will have these parameters very analyzed and taken into account when moving forward in the process.

    Determine the structure of the operation, which is usually as important as the valuation itself, since it is not the same as the consideration of an operation is cash or deferred – subject to future results (earn-out) or not, with call options, or actions, or referred to other legal aspects.

    Advance and close phases in the documentation and negotiation process, having the perspective of closing as a sum of phases successfully completed, such as the negotiation of the Letter of Intent, Due Diligence, purchase agreement, exceptions, among others are elements that once they have been discussed and discussed, they should not go back to negotiate or change their mind. If so, the party’s reaction would be negative and would mean a stumbling block or even the end of the process.

    Closure of the operation, for which it is essential to manage all aspects and people related to the operation in such a way as to mitigate the risks of surprises that could jeopardize the operation. Some of the keys that usually help in this closing task would be:

    Create a good collaborative environment, so that the parties get to know each other and ideally they have some empathy so that when problems arise in the negotiation, they do not pose an unsolvable problem.
    Prioritize, putting what is really important on the agenda, trying not to burn ourselves with non-relevant aspects. In this case, the advisor must keep in mind all the steps taken and those that are really missing for the closing as well as understand which of them may be eventual deal-breakers in order to put a solution as soon as possible.
    Being strong with the aspects of the operation, but not with the people, so that maintaining the inertia of the process, with clear ideas of the next steps, evaluating the priority issues and how to solve them are usually fundamental steps for a successful closing.

2021-09-04T16:05:27+02:00 17 de September de 2017|

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