At Strategic M&A Advisors, we have built a very successful business around the premise that a well-orchestrated, competitive market process substantially maximizes business value.
No two businesses are alike. No two business owners have the same set of personal and corporate goals and objectives. At Strategic M&A Advisors, we custom-tailor each client’s M&A process to maximize the likelihood that our individual client’s goals will be accomplished. That said, the basic elements of our unique lower-middle-market process are incorporated into each deal we do – which translates success as defined by our client. The following are the basic elements of our M&A strategy:
You will share everything about your business and much about your personal life with your chosen M&A advisor. Therefore, a relationship based on mutual trust is imperative. Therefore, the first step is simple. We do whatever it takes to build trust with our prospective client. Once mutual trust is in place, we can move forward together.
Our goal is to understand how our prospective client’s business functions. This step informally involves SMAA’s assessment of the target business. We seek to understand the key elements of the business and the “levers” or “drivers” that either create or detract from the value of the business. Once we understand the business and corresponding drivers, we can start advising the business owner about the ways the business will be viewed in the eyes of the future buyer of the business.
Given the goals of the business owner, the next step is for SMAA to estimate the market value of the business. Using the 3-year financial history and other key-value determinants of the business, coupled with our proprietary method of market value determination, we provide our client with a market value report. The report demonstrates to the business owner what we believe 80% of the market will say about the business from a valuation perspective, including ways the business owner can expect proposed deals to be structured.
By this stage, we have a strong understanding of business value as well as the goals and objectives of the business owner. Based on these key factors, we identify what we believe to be the best overall strategy (in the form of the identified M&A Process) to accomplish the targeted goals and objectives.
The Market Value Study and Identification of the M&A Process become our proposal to the business owner. Next, we negotiate a win-win compensation plan with the client and enter into full engagement.
By this stage, we’ve already gathered much information about our client’s business, but there’s more due diligence that needs to be conducted. After another thorough round of discovery, we write the Confidential Information Memorandum (CIM). This document is designed to enable the buyer to assess interest level and business value without requiring input from the business owner. The CIM will be shared with approved buyers (who have signed NDAs – see below).
Depending on the size and sophistication level of the business, the potential buyers could fall into various categories, both domestically and internationally: Strategic Buyers, Financial Buyers, Independent Sponsors, Search Funds, and Individuals. To properly prepare for the execution of the marketing strategy, our team first identifies the most probable business buyers or growth partners. This list could consist of hundreds or even thousands of prospective buyers.
Once the marketing strategy is mapped out and the CIM is written and approved by our client, we write a one-page, anonymous “blind teaser” that is used to market the business sale opportunity. In the teaser, we highlight key business attributes and financial metrics while keeping the name of the company and location anonymous. Marketing the blind teaser maximizes the likelihood of confidentiality being maintained.
With all the marketing documents in place and approved, we execute the marketing strategy. Depending on the size of the deal, it is not uncommon to receive 25, 50, and even over 100 signed Non-Disclosure Agreements from qualified buyers wishing to receive the CIM.
During the marketing phase of the process, buyers will ask many valid questions. We call this the second round of due diligence. Normally, at this stage of our process, we are not yet involving the business owner in conversations with interested parties, but we will need assistance and input from the owner as we answer the many questions that will be asked. To streamline the process, each prospective buyer that asks a question receives their answer in the form of a Frequently Asked Questions document that contains all questions asked by buyers along with the corresponding answers.
In the CIM, we ask prospective buyers to submit Indication of Interest Letters (IOIs) to us by a specified date. These letters are addressed to the business owner in care of SMAA and contain key consideration points such as name and background of the buyer, buyer’s plans for the business, the valuation of the business and corresponding deal structure, etc. The key points of interest should be contained within each IOI. Depending on the size of the deal, we’ve received as few as 2 and as many as 25 IOIs.
Once the IOIs are received, SMAA meets with the business owner to help with the selection of the top buyer prospects from those that submitted Indication of Interest Letters. The normal range of finalists selected is typically between 2 and 6.
Now that the finalists have been selected, it’s time to involve the business owner more intimately with the process. During this phase, site visits are scheduled and the owner has the opportunity to meet and build relationships with would-be buyers or growth partners. The buyers also take this opportunity to ask additional questions about the business that will put them in the best possible position to make the best possible offer for the business.
The marketing process culminates with the submissions of Letters of Intent (LOIs) from buyer prospects by the requested date. LOIs are non-binding offers (non-binding except for confidentiality and exclusivity) that provide the proposal detail the business owner requires to make the best buyer selection decision.
Without a doubt, by this stage of the process, the offers and opportunities the business owner faces far exceed what he/she could have accomplished on their own. As a result of careful planning and execution, the selection of the best buyer is normally an easy decision. Once chosen, the business owner’s M&A lawyer (often recommended by SMAA) reviews and negotiates the legal language of the LOI, and then the parties execute the agreement in good faith to work together towards a successful closing.
The last phase of the process consists of final due diligence on the part of the buyer and their team, and the legal negotiations associated with the Purchase Agreement (Stock or Asset). This final phase normally takes another 90 days on average and more often than not concludes with a successful closing.
Yes, that’s quite a process. When you hire the team at SMAA to handle your entire M&A process from start to finish, your business value is maximized as the result of our process, the deal structure is negotiated favorably, and your many other goals and objectives for the business are achieved.