Pre-Trade Services

Today, almost no business is acquired without due diligence investigation conducted on the account of a buyer. Therefore, usually in M&A transactions, buyers would commission finance, tax and legal due diligence investigation to be conducted by professional advisors. Additionally, in case of larger transactions due diligence investigation will likely encompass commercial and HR due diligence, and in case of manufacturing companies, technical and environmental due diligence.

Besides, buyers also expect that vendors shall present credible financial projections, preferably in form of a well-prepared, complete business plan.

Having participated in many M&A deals, we realise how important it is to be well prepared and not taken by surprise – therefore with our holistic and comprehensive approach to M&A transactions, we ensure business owners and management teams get well prepared and ready for a transaction before it has begun, with view to increase its speed, efficiency and to safeguard transaction becomes a success.

Vendor due diligence ("VDD") - Project Management

VDD is commissioned by vendors with external, specialist advisors who conduct financial, tax or legal investigation of a company that is up for sale or another form of equity transaction. Upon completion of VDD investigation, vendor receives VDD reports that provide independent view on company’s affairs by describing facts & figures and outlining risks and issues that will affect purchase price, transaction terms or in rare cases which may have impact on the prospect of a transaction. VDD reports provide many benefits to vendors, especially such as:

  • Shortening of the M&A transaction, because qualified buyers will receive a professional and coherently prepared package of information (VDD reports) instead of raw data that requires time-consuming analysis,
  • Quick start by buyer into buyer’s own due diligence – raw data that buyers will want to see has already been composed and deposited in a virtual data room (“VDR”),
  • Reduction of overall transaction risk – thanks to VDD reports, vendor has learned much earlier about key risks and issues identified by his own advisors and has taken necessary steps and actions to solve or mitigate identified problems. This enables avoiding surprises at a later stage when transaction is ongoing; vendor is well prepared to provide buyer with necessary explanations when asked, which keeps away unnecessary actions and reactions to be undertaken, usually under time pressure and high stress,
  • Building buyer’s trust – time-consuming and unnecessary loops in communication between buyer and vendor can be prevented or avoided, possible loss of buyer’s trust due to risks and issues identified is not an issue that otherwise may have led to identifying a deal breaker that would end up a transaction process.

Should a vendor choose to commission VDD investigation, we are ready to provide necessary support to a business owner and to a management team – as part of our service we will provide guidance on how to appoint advisers, we will engage in ongoing dialogue with advisers during VDD process, especially we will participate in expert sessions and Q&A process and upon finalization of VDD we will comment and provide recommendations with regards to VDD reports taking into consideration implications of VDD findings on a future transaction. However, we do not stop there, because during the course of VDD review we work closely with a business owner and a management team, who are engaged in the VDD investigation and who are requested to provide documents and information to advisers – in substance we are acting as VDD project manager.

Preparation of a financial information book ("data book")

As an alternative to financial vendor due diligence report (“VDD report”), business owners may choose to commission a lighter and cheaper form of preparation ahead of a planned M&A transaction that will supply potential investors with reliable financial information necessary to evaluate investment opportunity (specially to develop a valuation proposal and a non-binding offer), and to conduct buyer’s own due diligence investigation. The data book is mainly used in case of smaller transactions and with fewer potential participants from a buy side.

The data book differs from a VDD financial report in that it contains financial statements, descriptions and comments on historical financial facts, but it does not contain an independent assessment or interpretation that an external financial adviser would typically make in the VDD report.

Preparation of the data book is one of our key services. The data book prepared by theCFO team contains a solid and consistent set of company figures and analyses necessary to conduct company’s valuation exercise. In addition to financial data, the data book will contain information about other aspects of the company’s operations, such as its business model, customers, suppliers, employees & organizational structure or capital expenditures (CAPEX). The data book provides many benefits to vendors, especially such as:

  • Purchase price expectations – as part of our work on the data book, we will prepare a company valuation, which offers opportunity to verify and validate vendor’s sales price expectations. In the event that vendor’s price expectations and our valuation are consistent, the chance of success in a future transaction significantly increases,
  • NBO received in a few weeks – potential buyers can use information shared in the data book to make an initial offer fast and to prepare their own due diligence in just a few weeks. In particular, the period from the date of sharing the data book with a potential buyer to the date when buyer submits its non-binding offer gets significantly shortened (typically 4 weeks). The chance proposed purchase price will be close to vendor’s price expectations significantly increases too,
  • Faster decision making – in case of smaller businesses, a periodically updated data book can become one of the main sources of management and financial information for business owner, management team and for financial institutions (lenders), which provide funding to a company. The data book will therefore enable faster decision-making as it offers an up-to-date picture of company’s financial and commercial affairs.

Preparation of a Business Plan

In order to be adequately prepared for an M&A transaction, we usually suggest that, business owners who plan to attract outside investors or sell their business, draw up a business plan for the next 3-5 years. The very same relates to managers considering a management buy-out who will seek funding for a buy-out transaction from private equity investors and financial institutions.

A well-prepared, complete business plan will enable attracting most demanding investors who prefer to evaluate investment opportunities fast and at high standards, therefore making a prospect of an anticipated M&A transaction more likely.

Business plan is largely a strategic and marketing document shared with investors and financial institutions which shows historical performance, future growth strategy and also which demonstrates management team skills and commitment to an ongoing development of a business they manage. Business owners (or managers planning a buy-out transaction) who want to achieve successful M&A deal need to convince equity and debt providers that their business enterprise is an attractive investment opportunity.

theCFO team can provide central support to your efforts to develop a business plan. Because we are M&A enthusiasts, we are willing and happy to put such document together, composing of:

  • Executive summary – that coherently summarises the investment opportunity and sets out the situation among potential investors, especially company’s track record, growth potential, investment amount and achievable return from investment,
  • Business model – that presents concisely history of a business and description of products or services, scale of business, markets served, distribution channels, organization, key clients, suppliers and business partners,
  • Market overview – shows a market in which an enterprise operates and its relative competitive position, market size and growth rate, current market trends, industry and customer structure, competitive advantages of a business and intensity of competition,
  • Management team – profile of a management team and key employees together with description of their positions and responsibilities, qualifications and experience,
  • Financial history – a track record of a business, showing profit & loss, cash flows and balance sheet over the past 3 – 5 years,
  • Financial projections –a financial plan for the next 3 to 5 years, which is backed by management team.