Corporate Financial Advisory Guidelines For M&A
In today’s market environment a company has to evaluate a number of strategic alternatives. These alternatives include acquisitions, equity and debt financing, recapitalization, management buyout, merger or sale, and strategic alliances.
In making a decision with regard to strategic alternatives, it may help to have someone assist you in that corporate financial advisory project. The choice of such an expert should emphasize industry expertise, industry contacts and investment banking skills.
If you choose to work with an intermediary in helping you complete your chosen alternative, require the following of that person. The following points are applicable to a greater or lesser degree for all alternatives listed above:
- The ability to generate a carefully written and comprehensive selling document crafted to generate maximum appeal. Additional documents include addenda to the selling document, presentations as hard copy and PowerPoint, term sheets, and assistance to attorneys with letters of intent, definitive agreements and closing of transaction documents. The ability to generate the selling document is the guideline for the skills needed for these additional documents.
- The ability to generate a well orchestrated solicitation strategy capable of generating competition and multiple offers.
- Thorough industry knowledge. This alone will open windows of opportunity which otherwise remain closed to even the most skilled investment banker with a most impressive firm and with an equally impressive resume.
- Broad industry contacts with key industry managers and decision makers and professionals such as consultants serving the industry. This includes the ability to approach and communicate with prospects at the appropriate level. As in the previous point; this alone will open windows of opportunity that otherwise remain closed.
- Good personal chemistry. Choose an intermediary that you are comfortable working with. All of the alternatives, from recaps to M&A, take a long time (months) and are time consuming (daily), particularly in these post-ENRON and Sarbanes Oxley days. These two factors add due diligence requirements and time to all transactions for buyer, seller, investor or partner. Of course your intermediary should have a thorough understanding not only of Sarbanes Oxley, but also other key legislation such as Scott Rodino and the like to be able to guide the project successfully through various hurdles.
- Respect for your current commitments and obligations. Managing a company is a full-time job, and an executive who simultaneously manages both the company and a corporate financial advisory project such as a merger is indeed most competent and resourceful as to time utilization. Most executives therefore use outsiders with specialized expertise for such corporate financial advisory assignments, as opposed to attempting to going through a learning curve for a very seemingly simple (but in actuality, a very complex) process. Of course a competent executive may also be former and most accomplished consultant or auditor or attorney or banker, and therefore well qualified to handle a corporate financial advisory prospect. But the critical question for most executives and even the most qualified in terms of managing such a project is: “Can I handle two full-time jobs?”
- The ability to generate a continuing stream of financial and valuation models relative to your proposed transaction. Be assured that your target company will most probably have these skills and you must, at risk of compromising your negotiation position (meaning loss of value) have a comparable capability.
The financial condition of a company and its financial statements are most important for all transactions. However the emphasis for a strategic merger or sale project is in the intangible assets. That leads to the following: A financial (balance sheet) deal focuses on tangible assets. A strategic deal, which is what virtually all technology deals are, focuses on intangible assets such as IP and customers and know-how, and on those intangible assets that walk out the door each evening. Accordingly, significant value for your company will be the people and the intangibles, and you and or your intermediary must understand this and emphasize this point in every way during the full course of your project. If you don’t, you will leave money on the table.
Should you proceed with a corporate financial advisory project, you may wish to work with a professional. Of course it is true that transactions can be closed without using one, and often at a premium value. Yet in most cases it is most beneficial to have an intermediary between you and the buying or selling target. A homily making the rounds for years is that he who negotiates for himself has a fool for a client.
In closing, there may be good reasons to handle a transaction by yourself. But if you choose to work with an intermediary, choose one with a reputation for commitment and persistence. It is said that the first rule of business is persistence, along with a lot of patience, and any one of the projects described in the first paragraph will certainly test these rules of patience and persistence and commitment.
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For more information, contact:
Instream Partners LLC
545 Middlefield Road, Suite 150
Menlo Park, CA 94025
(w) 415-217-6400 x702