For investors

M&A Transaction Advisory

Currently, in many industries, the consolidation process is underway and driven by diverse factors such as growing competition, market expansion, changing technologies, etc. Market leaders grow not only organically but also through mergers & acquisitions.

When we work with financial investors (private equities), we typically begin by searching for “transactable” companies operating in growing industries that make up an attractive acquisition target. We can navigate in any market because we are guided by our strategy: theCFO 7 levers of a successful acquisition. We realize that financial investors seek above-average returns from their investments yet at an acceptable level of risk.

Non-financial investors’ (industry players) motives far go beyond just high ROI and acceptable risk. Corporates and industry buyers usually seek to acquire a target company with objective to increase their market share, integrate horizontally or vertically, obtain technical or intellectual know-how, make geographical expansion, enter new market, sales channel or increase production capacity.

Conditions for a successful acquisition

With our holistic approach we are capable of supporting investors in each step of their M&A project

Optimal choice of acquisition targets – through a complete and systematic analysis of available acquisition opportunities and transaction feasibility, we select the most attractive acquisition targets. While we define and follow specific acquisition criteria (e.g., industry, revenue size, product or service portfolio, customers and distribution channels), our clear goal is to identify the most attractive target companies and gather information necessary for their investment profiles. We therefore analyse the wider market landscape and establish direct contact with larger number of potential vendors so that in the end our clients have satisfactory level of comfort that the short-listed companies make for an optimal list of suitable acquisition targets.

Transaction strategy – besides composing an M&A target list, we make sure a buyer has put together a thoughtful plan for a transaction, which is yet to happen in terms of the form of a deal (share vs. asset deal), stake (majority vs. minority), acquiring entity (future upstream or downstream fund flows, tax considerations) and sources of funding (equity vs. debt). Therefore, transaction structuring includes topics such as % shares to be acquired, determination of an acquiring legal entity, form and time of payment of a purchase price or post-closing equity injections, loans and dividend distributions. In this respect we make sure our clients make optimal choices taking into account economic rationale, transaction risk and speed. In case debt is required as part of sources of funding, we are ready to identify, negotiate and close deals with lenders.

Realistic and balanced valuation – due diligence  (financial, tax, legal, commercial, technical or environmental) aims to establish the right price, which is acceptable to an investor and simultaneously identifies risks pertaining to a target company’s business, which shall be addressed in transactional documentation, such as a share purchase agreement (SPA) and shareholders agreement, to protect value of an investment.

Successful negotiations – negotiations are amongst the most challenging transaction steps, for which we prepare the right approach. On behalf and with participation of a buyer, we conduct discussions and negotiations with a vendor from first, initial contact through to transaction completion. The difficulty of negotiations is not only in legal, technical details or target business complexities but also in emotional dynamics between a vendor and an investor. Success of a transaction will depend not only on a purchase price or payment terms; non-financial issues that play a role often relate to how a target company will be managed after a transaction, composition of future management team and role of a vendor (founder) in a target company’s business going forward, non-compete expectations by an investor or investor’s views on target’s growth strategy after an acquisition. It makes sense to appoint M&A adviser who acts as objective expert and who can stand behind an investor throughout negotiations, especially while setting up the boundaries and red lines. This is an important element of transactional success, because “defining a negotiation strategy, its boundaries and the red lines and writing them down brings a larger picture view to a buyer in terms of negotiation priorities, which will make negotiation decisions simpler, faster and in the end more successful.”.

Synergies and integration – buyers should start planning for post-merger integration (PMI) already at the outset of a transaction. Regardless of whether a buyer is financial or industry investor, a ”100 day plan” should be put in place before transaction is completed, which outlines actions to be taken in the first 3 months after completion to secure buyer’s sense of control over acquired business. Longer-term PMI strategy should outline various, possible scenarios in terms of scope, speed, spirit and start of integration but also the types of synergies expected, composition of PMI team or approach to decisions to be taken while executing integration. The objective of a most desired scenario for PMI is to release maximum synergies and reserves and to efficiently merge human talent and resources of both organizations, which shall, if successful, result in incremental shareholder value that has remained unseen before a merger.

theCFO 7 levers of a successful acquisition - How to choose the right acquisition target?

When searching for the most attractive acquisition targets, we follow the following criteria:

  1. Market scale – established (market leader or close to market leader) position in the market (niche or larger segment),
  2. Market position – unique, differentiated market position (e.g., either by product, service characteristics, technology or by sales channels) – target company stands out from competition,
  3. Growth potential – significant growth potential driven by overall market growth or by growing market penetration – company acts better than competition,
  4. Product and service portfolio – excellent competencies in new product development (NPD) and technology (R&D) e.g., through process automation or registered patents,
  5. Result oriented organisation culture – operational efficiency, focus on productivity improvements and customer satisfaction oriented culture,
  6. Management – management and key employees are not reluctant to change, can be seen as highly competent in their field, are oriented towards self-development and operational excellence, which when combined together make the company operate successfully with high potential for further growth,
  7. Cash flows – target company generates positive cash flows sufficient for working capital requirements, investment and debt repayment.

Are you buying what you think you’re buying?

Key benefits of due diligence – due diligence investigation of a target company is designed to evaluate its financial condition and future prospects and also to discover key business risks and issues (e.g., regulatory, legal, environmental or tax) that may have negative impact on valuation of the business and its potential for growth. During a course of due diligence investigation, issues may come to light, such as related to overall compliance with law and regulations, contractual relations, debt default events or breach of bank covenents, insurance, grants and subsidies granted from public funds, employee and management affairs. In conclusion of the due diligence investigation, theCFO team will determine the impact of risks and issues on an acquisition target valuation (purchase price), payment terms and other terms of anticipated transaction.

Enterprise Value

  • Preliminary EBITDA – financial, commercial and other information shared in good faith by a vendor at early stages of a transaction sets the foundation for buyer’s appetite for a transaction and the purchase price that is dependent on level of profits and profitability, market positioning, growth prospects, initial risk assessment or anticipated transactional issues, which if acceptable to a buyer, lead investor to submit a non-binding offer,
  • Normalised EBITDA – due diligence findings allow for verification of initial investor’s assumptions and validation of preliminary EBITDA and lead to determination of a purchase price, buyer is willing to pay once target company has been evaluated in course of due diligence.

Purchase Price adjustments

Following completion of due diligence investigation it is also the right time to determine adjustments below an enterprise value, in particular value of net debt, debt- and cash-like items, which when bridged with an enterprise value show a complete purchase price for target company’s shares. These adjustments are later subject to agreement between buyer and vendor in course of final deal negotiations.