M&A Deals - The Power of Multiple Buyers
M&A Deals - The Power of Multiple Buyers
In M&A deals - the power of multiple buyers should never be discounted. In fact, having multiple buyers is an essential ingredient to a successful transaction.
The proper way to sell a business is for the M&A advisor or investment banker to prepare a Confidential Information Memorandum (“CIM”) on the company to be sold. The CIM will give the potential buyer an in-depth look at the company. However, before the buyer sees that document, the investment banker will prepare a “teaser,” which will enable them to generate interest in the company without disclosing the company name, location, or other revealing details. The M&A advisor will prepare a list of potential buyers who will receive the teaser in order to maximize the power of multiple buyers.
When prospective buyers see the teaser, they decide if they’re interested. If they are, they execute a Non-Disclosure Agreement and receive the detailed CIM. Most buyers have questions after reading the CIM and the investment banker either answers them directly or sets up a conference call with the seller. In other cases, informational meetings are held where the seller gives a management presentation and the buyers ask questions.
In any case, if the prospective buyer is serious and very interested, they will submit a Letter of Intent (“LOI”). The LOI outlines the value and basic terms/conditions for the purchase. Unless stated to the contrary, LOI’s are non-binding. Usually, a buyer will make certain clauses binding to protect themselves. Similarly, the seller will want certain provisions to be binding.
Sometimes sellers become overly excited when they receive their first LOI, especially if the price/terms are favorable. Sellers should always consult with their investment banker as to the advisability of accepting the first offer. Committing to the first buyer eliminates the chance of negotiating a better deal with that one buyer and ruins the chance of developing the other buyers, just in case the original buyer fails to close. Most importantly, the whole objective of the sales process is to create an auction whereby all of the buyers would compete. Accepting the first offer circumvents this important step in creating a superior transaction. It violates the basis rule of M&A deals – the power of multiple buyers.
Versailles Group firmly believes that if a seller has one buyer, they have no choice. If the seller has two buyers, they have a dilemma. It’s only with three or more buyers does the seller have true choice. With only one buyer, the seller has no leverage, which means that the closing takes longer and the buyer will feel free to keep negotiating the deal or even just walk away. Thus, many investment bankers say “one buyer is no buyer.”
To summarize, an experienced M&A advisor will know how to conduct this process efficiently and effectively. That being said, many firms believe that the process is like a recipe or treat it like a “cookie cutter.” The basic process works, but it always works better if the investment banker has a flexible program that can accommodate the normal twists and turns that take place in today’s fast paced world. That’s really the only way to maximize the power of multiple buyers. Versailles Group has closed many transactions because of its unique ability to run these processes in a manner that maximized value and terms and met or exceeded the sellers other objectives. Thus, M&A deals – the power of multiple buyers should always be maximized.
