Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Deal closing
Post-closing aspects
Deal structuring, closing
DEALCLOSING
Delayed
Payments?
Signing
SPA, SHA
Due diligenceTermsheet
Closing =NOT YET= signing of binding
legal agreement...
CONDITIONS PRECEDENT
Conditions precedent == conditions that are
required to be met before deal value is paid
against tran...
CONDITIONS POST-CLOSING
Conditions post-closing
== conditions that need to be met after 1st money tranche (sometimes even
...
ПРИМЕР:CONDITIONSPRECEDENTANDPOST-CLOSING
Некоторые примеры по данному условию:
• Сделка
• Финальное одобрение сделки внут...
MECHANISM FOR DELAYED PAYMENTS
Conditions precedent, conditions post-closing
Escrow
Earn out
Compensation package for key ...
DEALPOST-CLOSINGASPECTS
• Legal conditions post-closing
• Integration (==how to continue run an acquired company along wit...
Deal post-closing aspects
M&AFAILS
Despite lot of money spent on acquisitions every year, many of them fail
Possible causes of high M&A failure rate...
ASK-BID SPREAD
Typical scenario: Seller wants X times higher valuation than what Buyer is willing to pay
Sellers price
exp...
WHY COMPANIES BUY OTHER COMPANIES?
Reasons to buy = Synergies
Enhancing technology within core product vertical
Acquire ne...
VERTICAL VS HORIZONTAL INTEGRATIONS
• Acquisition of the company at the same level of the value chain as the acquirer
• Ex...
SYNERGIES EXPLAINED
• Headcount reduction
• Consolidation of overlapping facilities
• Increased purchasing power
• Enhance...
INTEGRATION:3VARIOUSPATHS
• Discontinued own management team
• Transfer part of employees or reorganize acquired company w...
INTEGRATION:3VARIOUSPATHS
• Full Integration
• Partial Integration
• Limited, if at all, and keep Stand Alone
Your guesses...
INTEGRATION:3VARIOUSPATHS
• Full Integration: When it is the right thing to do?
• Partial Integration: When it is the righ...
INTEGRATION:FUNCTIONALAREAS
• Product roadmap
• Technology platforms
• Sales
• Marketing
• Operations
• Support
• Other
• ...
INTEGRATION:SYNERGYPERSPECTIVE
Synergy
The largest
in the value
The smallest
in the value
The longest to
implement
The eas...
Upcoming SlideShare
Loading in …5
×

Deal closing, post-closing aspects

67 views

Published on

M&A School
ZEO University/AVentures Capital

Published in: Education
  • Be the first to comment

  • Be the first to like this

Deal closing, post-closing aspects

  1. 1. Deal closing Post-closing aspects
  2. 2. Deal structuring, closing
  3. 3. DEALCLOSING Delayed Payments? Signing SPA, SHA Due diligenceTermsheet Closing =NOT YET= signing of binding legal agreements Sales-Purchase Agreement (SPA) and Shareholders Agreement (SHA) Closing == transfer of money (most of the deal value) & shares from buyer to seller. Only then (unless the deal is revokable) Conditions post-closing Conditions precedent $ vs % Synergy execution Integration
  4. 4. CONDITIONS PRECEDENT Conditions precedent == conditions that are required to be met before deal value is paid against transfer of shares • Conditions precedent depending on the external side: such as antimonopoly committee or some external approval needed • Conditions precedent on the acquirer side • Conditions precedent on the seller side
  5. 5. CONDITIONS POST-CLOSING Conditions post-closing == conditions that need to be met after 1st money tranche (sometimes even if 1st tranche equals the full payment) == conditions that are “less important” if 1st money tranche is significant part of the deal value If you are a seller, better tactic is always to negotiate inclusion on less important terms from conditions precedent to condition post-closing
  6. 6. ПРИМЕР:CONDITIONSPRECEDENTANDPOST-CLOSING Некоторые примеры по данному условию: • Сделка • Финальное одобрение сделки внутри компании покупателя • Антимонопольное разрешение • Команда • (пере)подписать договора с выбранными сотрудниками • Финансы/traction • увеличить MAU, DAU до хх тыс. пользователей • подписать договор с х ключевым клиентом • «отбелить» бизнес, плата всех налогов, аудит • Юридические вопросы • зарегистрировать компанию в х юрисдикции • привести юридическую структуру в целевую • перевести интеллектуальную собственность • получить патент • Другое • Ключевым сотрудникам получить визу для официальной работы в другой стране и переезду Some of these conditions might be not “conditions precedent” but “conditions post-closing”
  7. 7. MECHANISM FOR DELAYED PAYMENTS Conditions precedent, conditions post-closing Escrow Earn out Compensation package for key employees Equity swap, lock-up period Indemnity Reversible conditions
  8. 8. DEALPOST-CLOSINGASPECTS • Legal conditions post-closing • Integration (==how to continue run an acquired company along with current business?) • Synergy “execution” (==how to make sure 1+1=3?) • Delayed payments: deal outstanding financial obligations (might be structured for a few years)
  9. 9. Deal post-closing aspects
  10. 10. M&AFAILS Despite lot of money spent on acquisitions every year, many of them fail Possible causes of high M&A failure rate: 1 2 3 4 5 6 Poor due diligence Acquisition strategy resting on wrong convictions No or weak integration plan post acquisition No or weak synergies or failure to extract them Cultural clash between a buyer and a company being acquired Paying too much 8 Acquiring product / technology that turns to be obsolete after a while 7 Overly optimistic approach to projections estimations
  11. 11. ASK-BID SPREAD Typical scenario: Seller wants X times higher valuation than what Buyer is willing to pay Sellers price expectations Buyers willingness to pay Valuation based on various independent valuation methods Ask-bid spread Reasons why Sellers expect such price • Overconfidence in own business and its prospects • Does not see risks or does not want to price in risks • Irrational behavior ☺ • Competitive offer at a higher price • Independent valuation appraisal • Underestimated buyer’s assumptions Reasons why other Buyers would pay Seller’s expected price • Greater synergies • Buyer has access to cheap capital Reasons why no Buyers would pay the expected price (no exit scenario) • Cheaper to build, low entry barriers • No strategic fit to any acquirer with capital ☺ • Many similar companies to choose from with a low price tag In many cases, the acquisition priced assumes that the deal value is partially justified by synergy == which means that failure to implement synergy might make the deal look expensive
  12. 12. WHY COMPANIES BUY OTHER COMPANIES? Reasons to buy = Synergies Enhancing technology within core product vertical Acquire new product / product line 1 2 3 4 5 6 7 8 9 Supply chain enhancement New breakthrough technology/IP right Team acquisition Acquisition of sales channels Geographic expansion Capture additional market share Your ideas?
  13. 13. VERTICAL VS HORIZONTAL INTEGRATIONS • Acquisition of the company at the same level of the value chain as the acquirer • Expands geographic reach, product lines, services or distribution channels • Economies of scale and scope Horizontal integration Vertical integration • Purchase of the business at the same level of the value supply chain • Growth opportunities by affording control over key components of the supply chain Risks: • Limited choice of suppliers and innovation once M&A is complete • Management and logistics hurdles • Channel conflict with customers Risks: • Negative revenue synergies • Anti-trust issues Most Tech M&As M&As in Hardware Tech Raw Material Supply Production Distribution End User Supply chain example: + +
  14. 14. SYNERGIES EXPLAINED • Headcount reduction • Consolidation of overlapping facilities • Increased purchasing power • Enhanced sales growth • Enhancing or expansion of an existing product/service • More speculative than cost synergies Synergies Cost synergies Revenue synergies Synergies - the sum should be larger than its parts; 1 + 1 = 3. Financial synergies Sales & marketing synergies • Decreased cost of capital • Lowered risks, better cash flow, increased financial margins • Higher margins achieved via increased negotiation capabilities towards suppliers and customers • New channels Efficiency Entry speed Competitive Increased market size Corporate competencies Knowledge and learning curve Resources Consolidation Resource sharing Price pressure Transaction cost Bargaining power Types of gains from synergies
  15. 15. INTEGRATION:3VARIOUSPATHS • Discontinued own management team • Transfer part of employees or reorganize acquired company within organizational structure of acquired company. • Integration of sales, marketing, R&D etc. • Have an independent management • Own P&L responsibility • Some activities are done jointly (for instance, sales/marketing/branding) • Some shared infrastructure • Keep an acquired company as a Stand Alone Business • Let the acquired company to run independently • Have influence only on the CEO / few key executives == it does NOT mean that synergy won’t be executed. • More synergy could be extracted if a company continues to run independently Each of these paths has its own pros and cons Full integration Partial Integration Limited Integration might be done not immediately to Full Integration, but through an intermediary step or initially via one path that then changed to other one.
  16. 16. INTEGRATION:3VARIOUSPATHS • Full Integration • Partial Integration • Limited, if at all, and keep Stand Alone Your guesses on which type of acquisition were - Most of Mail.ru acquisitions? - Google – Viewdle acquisition? - Naspers classifieds acquisitions? - Snapchat – Looksery acquisition? - EPAM – CIS outsourcing firms? The insight what the strategic is planning to do around an Integration, might help you during the negotiations for the deal
  17. 17. INTEGRATION:3VARIOUSPATHS • Full Integration: When it is the right thing to do? • Partial Integration: When it is the right thing to do? • Limited and keep Stand Alone: When it is the right thing to do?
  18. 18. INTEGRATION:FUNCTIONALAREAS • Product roadmap • Technology platforms • Sales • Marketing • Operations • Support • Other • Culture • Organizational • Leadership, executive team • Corporate governance Limited integration Full integrationPartial integration
  19. 19. INTEGRATION:SYNERGYPERSPECTIVE Synergy The largest in the value The smallest in the value The longest to implement The easiest to implement

×