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How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
How the M&A process works
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How the M&A process works


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This will tell you all you need to know about a company sale from both a buy side and sell side perspective

This will tell you all you need to know about a company sale from both a buy side and sell side perspective

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  • 1. M&A Process Overview
    By Thomas McKeown
  • 2. Introduction
    Definition and description of overall process
    The M&A market (The Acquisition Market) (P4)
    Financial /Strategic objectives in a M&A deal
    The benefits and risks of M&A
  • 3. Summary
    Sales side
    Eight steps to closing a sale
    Seeking a financial advisor- areas and FA should have experience
    Assembling the deal team
    Legal counsel, accounting and actuaries
    Types of sales process
    Control led auction
    Target auction
    negotiated process
    Deal structuring
    Asset versus entity sale
    Preparing the buyer list
    Preparing marketing materials- CA,CIM, Teaser, Bid process letter
    Actuarial appraisal and reserve review
    Comparing data room
    Initial contact with prospective buyer and follow up
    Preliminary bids and review
    Preliminary due diligence and strategy
    Data room strategy and management presentation
    Break out session strategy
  • 4. Summary
    Buy side
    Evaluating the opportunity
    Pre screening the opportunity
    Retaining a buying side FA
    Review of opportunity
    Market analysis
    Preliminary valuation of target
    Financial modeling
    Preliminary due diligence
    Final bids
    Negotiation LOI
    Due diligence, deal financing, rating agencies
    Management updates
    Purchase agreement
    Key conveyance
    Deal protection
    Employment agreements
    The path to closing
    Presentation to board of directors
    Regulatory issues, antitrust issues, SEC review
    Public announcement
    Shareholder approval and closing
  • 5. Concepts and Purpose
    Merger- A combination of two or more companies in which the assets and liabilities and liabilities of the selling firm are absorbed by the buying firm.
    Acquisition- The purchase of an asset (I.E- plant, division, entire company).
    The M&A market- based on:
    Availability of financing-loan and debt & equity markets.
    Rising Stock Prices and rising P/E multiples- lead to higher cash flow.
    Ongoing restructuring
    Tax Implications
    Wealth transfer b/w generations
    Market Psychology
    Financial objectives in a M&A deal
    Strategic objectives
    The benefits and risks of M&A
  • 6. Financial/Strategic Objectives
    Financial Objectives
    Strategic objectives
    Primary Objective- Promote Corporate Growth.
    Increase perceived future earnings.
    Expense Reduction Strategy- acquiring “orphan blocks” of life insurance.
    Revenue Synergies- Increased sales of different product lines.
    Improving the buyer’s long term competitive position by:
    Elimination of competition
    Gain access to more markets
    Creating economies of scale
    Leveraging Tech
    Gain share/pricing power
    Improving Distribution.
  • 7. Financial/Strategic Objectives (continued)
    Horizontal vs. Vertical Integration
    Other Potential Objectives
    Horizontal Integration- acquisition of market share in a company’s existing competency (typically at the expense of rivals).
    Geographic Integration is part of Horizontal Integration.
    Vertical Integration- Gaining control over additional “links” in the value chain.
    Diversification- could lead to less volatile earnings. I.E) Variable annuities and fixed annuities are inversely correlated.
    Accounting and Tax
    Research & Development
  • 8. Benefits and Risks of M&A
    Can provide short/long term benefits to acquirer’s shareholders. This increased cash flow and drives up value of share holder equity.
    Can provide immediate strategic benefits- impractical to generate organically.
    Financial Risks- possibility of overpaying due to overly optimistic revenue synergies or cost savings.
    Strategic Risks- “channel conflict.”
    Execution Risk- everything goes right except integration.
  • 9. The Sell Side
  • 10. Eight Steps to Closing a Sale
    Preparing to Sell
    Review Preliminary Bids
    Due Diligence of Seller
    Final Bids & Negotiations
    Executive Definitive & Regulatory Filings
  • 11. Seeking and Acquiring a FA
    Strategic Alternatives- A financial Advisor (FA) is typically retained to formally review the seller’s options.
    The advantages to hiring an FA:
    An Investment Bank is impartial.
    Investment banks may present options management has not considered.
    They have insight into the most feasible as opposed to most desirable alternative.
    A FA should have experience in:
    the relevant industry or sector
    Valuation expertise
    Relevant M&A experience
    Financial structuring experience
    Strategic vision
    Process Prowess
    Negotiating skills
  • 12. Assembling a Deal Team
    Senior Management time is scarce and valuable, efficiency is important.
    Coordination of efforts- Effective communication, generally done by FA
    Need to seek a Financial Advisor
    Legal Council- bids, contracts, agreements
    Accountants- “Quality of Earnings” report, taxes, employee benefits, risk management, IT. (Play a larger role on the buy side).
    Actuaries- Character of seller’s liabilities.
  • 13. Controlled Auction
    Broad number of strategic and financial buyers.
    Maximizes likelihood all possible buyers will be contacted.
    • Breadth of process maximizes risks of leaks
    • 14. Creates maximum competition.
  • Target Auction
    • Flexibility in timing and buyer selection
    • 15. Maintenance of confidentiality
    • 16. Limited approach to strategic buyers and broad approach to financial buyers
    • 17. May omit certain potential buyers
  • Negotiated Process
    • Opportunity to accelerate closing
    • 18. Highest degree of confidentiality
    • 19. Limited number of strategic and financial buyers
    • 20. Difficult to create Competitive pressure.
  • Deal Structuring
    Will seller’s shareholders accept cash, stock, or combination?
    Asset Vs. Entity- Operations and liabilities or a book of business.
    Insurance Industry- An Asset Acquisition is typically a block of policies or line of business.
  • 21. Tax Issues
    How are gains calculated?
    Are there tax efficient ways to sell the business?
    Can buyer increase tax basis to reflect seller’s purchase price.
  • 22. Pre- Marketing
    Preparing the Buyer List- FA provides list of qualified buyers.
  • 23. Key Marketing Documents
    • The Teaser- brief 1-3 page document that is prepared and distributed by FA to attract potential investors. The document highlights attractive attributes of company, provides financial summary, and may contain financial projections. If the potential buyer remains interested, the bankers send out the: Confidentiality Agreement (CA)
    • 24. Confidentiality Agreement(CA)- Between Seller and Potential buyer. The CA is intended to protect the seller from unauthorized sharing of information by the buyer. Upon agreement of the CA by the buyer, the seller sends the Confidential Information Memorandum (CIM).
    • 25. Confidential Information Memorandum (CIM)- Primary document used to market to the seller. Describes seller’s industry, contains:
    • 26. Executive summary
    • 27. Key investment characteristics
    • 28. Overview of Organization
    • 29. Detailed historical and financial operating performance
    • 30. Financial projections.
    • 31. Bid Process Letter- accompanies CIM when sent to prospective bidder. Includes description of general process and establish deadlines. It may also contain the identity of acquiring entity, source of financing and other detailed information.
  • Actuarial Appraisal
    • It is a wise idea to hire an outside firm for valuation due to impartiality.
    • 32. Ideally, this is completed before the formal marketing begins.
    • 33. Compiling the Data Room
    • 34. FA leads charge to build a “Data Room.” Consists of detailed, highly sensitive information to seller. This generally supports the actuarial appraisal.
  • Marketing
    • Initial contact with Prospective Buyers- teaser
    • 35. Follow-up with interested parties- issuance of CA, CIM, and bid process letter.
    • 36. Reviewing Preliminary Bids- A FA must manage a seller’s expectations. FA and seller determines which bids go to a second round and which are excluded.
    • 37. Preliminary Due-Diligence- Seller may invite one or more potential buyers to further negotiate based on strategy.
    • 38. Due-Diligence- Must form proper strategy as acquirer’s spend significant amount of time analyzing seller’s business.
    • 39. Data Room Strategy- FA of the seller must ensure information and technology is prepared for a smooth process.
    • 40. Management Presentation- The seller’s opportunity to “tell the story.” Should provide key investment considerations and an overview of the operating and management history.
    • 41. Break-Out Session Strategy- Various disciplines go one on one.
  • The Buy Side
  • 42. Evaluating the Opportunity
    Pre-Screening the Opportunity
    • Retaining a buy-side FA- use of financial models to value past and future, value private companies, prepare LOI, negotiate terms of agreement and financing, and to close transactions.
    • 43. Market Analysis- evaluate short and long term potential for combined company.
    • 44. Preliminary Valuation of Target- Determines price of target.
    Public Company Comparable Valuation
    Comparable transaction Valuation
    Discounted Cash Flow (DCF) or Dividend Discount Valuation.
    Financial buyer valuation
    Actuarial Appraisal
    • Financial Modeling- This shows if acquisition makes sense within a range of potential offer prices given the buyer’s financial objectives.
  • 45. Preliminary Due Diligence
    Opportunity for Buyer to:
    • Decide whether to submit a bid
    • 46. Ascertain information needed to form meaningful bid
    • 47. Protect itself from downside risks
    • 48. Final Bids- As a result of Due-Diligence, Management decides whether to continue or not.
    • 49. Negotiation of the Letter of Intent, LOI- Describes the ground rules for buyer and seller. Typically deal with management and policies of a transaction.
  • Due Diligence- buy side
    A potential investor may dispatch a team of 50 or more individuals.
    All issues are addressed as: 1) adjusting the bid price or by 2) adding protection mechanisms.
    Deal Financing- FA assists management in raising financing.
    Rating Agencies
  • 50. Negotiation
    • Analysis of negotiated terms.
    • 51. Management updates
    • 52. Purchase agreement- terms of LOI plus numerous legal, financial, and operational contingencies.
    • 53. Key covenants- pertains to matters over time
    • 54. Deal protection- “no shop clause,” liability issues, intellectual property protection.
    • 55. Employment agreements- deals with incentivizing employees in integration processes and may prevent an exodus of talent.
  • Path to Closing
    Presentation to the Board of Directors- once deal is arranged, buyer and seller both present to the boards of their respected companies. The seller’s board of directors will ask for a “fairness opinion.”
    Regulatory Issues- State, Anti-trust, SEC Review
    Presentation of deal to the Public: Announcement
    Shareholder Approval