UK Business Information / Preparation before the deal

PREPARATION BEFORE THE DEAL

Specialist advisers should be engaged at an early stage to provide advice in any M&A deal. These include lawyers, lead advisers and accountants. Management strategy consultants can also be engaged if an acquisition or growth strategy is not clear. Advisers not only have specialist skills that are beneficial through the acquisition process but they can also be useful in finding the right acquisition or merger targets through their in-depth industry knowledge and wide contact base.   

The acquirer should conduct as much research about a potential target as possible prior to any deal. This includes conducting market intelligence, ascertaining why the company may be up for sale and whether the business has been “dressed up” for sale in any way. The management of the acquirer should be confident they have the necessary skills to integrate the business successfully; otherwise lock-in agreements may be needed for key individuals during a transitional period. Also to be considered is the personal position and motivation of the vendor. For example, is the target a family owned/owner managed business? Is the vendor retiring or looking to reinvest? 

Valuation is also, clearly, an important consideration for both the vendor and acquirer. Valuation of the target should be undertaken prior to the commencement of negotiations. This is an important element as it can set an initial benchmark for the deal and ascertain whether the target is potentially over or undervalued, even though the final price will be subject to negotiation. Valuation can focus on a capitalization of earnings/multiples approach, discounted cash flow or net assets basis depending on the characteristics of the business in question. Any potential synergy benefits and cost savings should also be taken account and quantified and valued. The acquirer may also need to pay for some of the benefits/savings made as a result of any acquisition, although this, again, will be the subject of price negotiations.

On the sell side, the vendor should prepare the business for sale by appointing specialist advisers at an early stage, including lawyers and M&A advisers. Sales documentation should also be produced, including an Information Memorandum as the principal sales document and potentially also an Executive Briefing, which gives a brief summary or teaser to entice would-be, interested, buyers.