Rob Starr, Head of M&A at Shaw & Co, explains what you need to do to negotiate and close a business acquisition deal.
Acquiring a business as part of your M&A growth strategy, or through a management buy-in or MBO may seem daunting if you haven't been through the process before. Here are three areas to consider if you are thinking about buying a business:
Inevitably, any negotiation, which all business acquisitions involve to some extent, requires compromise. Deal craft involves focusing on the common goals between parties in order to find a way through any impasse. Understanding the points that really matter and the points on which compromise can be reached takes experience and foresight.
Like a good game of chess, you have to be able to think four or five or more moves ahead. To be able to do that takes a huge amount of deal experience; if you find yourself reacting to what is in front of you without fully understanding the consequences of your next move, you are likely to come up short against an experienced player.
If, for whatever reason, there is a gap in valuation expectations between buyer and seller then this is never easily overcome. However, an earnout – where a proportion of the consideration is paid based the business achieving profit targets – is one popular option that can help bridge the gap.
When you are buying a business, a robust due diligence process is vital in ensuring that there are no hidden surprises and you know exactly what you are buying. Be it Financial, Legal, Technical or Commercial due diligence there are a few key things to remember:
Our core advice is the same. Employ a corporate finance advisor who can support you and help ask the right questions. A corporate finance advisor will also be able to help shape the ‘scope’ of the diligence exercise, helping to reduce cost and time expended by focusing on the issues that really matter to a funder.
In our experience, regardless of which side of the deal they sit on, people are almost always shocked at the level of detail involved when conducting the due diligence process - no stone is left unturned.
Issues do commonly arise in due diligence. The key is how all parties deal with them. Focus on the common goals between stakeholders in order to find a way through any impasse. Inevitably, any deal negotiation requires compromise. Understanding the points that really matter and the points on which compromise can be reached takes experience and foresight.
There’s a lot of hard work involved in completing an acquisition, and there is a great deal of value in having an experienced adviser on your team to make things happen and drive the deal to completion.
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