Jason Correia
BridgeTower Media Newswires
To appropriately advise clients considering a merger or acquisition, it is important to understand what their goals are for a potential transaction.
Are they looking to expand their current business, and thus thinking of acquiring another business that will help them grow their existing operations? Or are they considering a strategic acquisition that will help them grow in a different way — by expanding into a new geographic location, targeting relationships with specific customers, or expanding into a complementary service?
By figuring out their strategic objective and goals for growth and expansion of their business, the value of the potential acquisition — and the role of their advisors — can be better understood.
In this first scenario, your client may have companies in mind that it is thinking of approaching (usually current competitors). This approach tends to be advantageous for the buyer, as it can reach out and make a strategic unsolicited offer. In doing so, it might reach the target before that company goes out to market (and in some cases, it might not even be considering a sale of its business at the time).
This kind of offer, from the buyer’s vantage point, creates several advantages as the seller may not be engaged with a broker at this point. Thus, your offer could likely be the only one on the table, and if you’re able to secure an exclusivity period to negotiate with management, it allows you to avoid a competitive marketplace with other bidders.
This is definitely an easier path for clients to go down, without the complications that can come when more parties are involved.
However, if your client is looking at getting into a new geographic region or adding complementary services, and doesn’t know the companies that fit these characteristics, it may be a more difficult process.
In that scenario, it will be unlikely to avoid a more competitive process in which it is one of several potential buyers putting an offer forward, making it much harder to find good value. Particularly with all the private equity capital currently in the market, it is extremely difficult for a strategic acquirer to win in a competitive bid (or controlled auction) process.
When considering an acquisition, from the client’s standpoint, it is important to balance the timing in terms of when to get all of its advisors involved. After all, it wants to keep the process moving, but it certainly doesn’t want to pay unnecessary professional fees if it turns out the transaction is not going forward.
Instead, the client should be encouraged to conduct some of its own due diligence on a business before it calls its advisors in — have discussions with the owners, perform a site visit (if possible), get a sense of the business and its worth.
After this process is complete, the client should seek assistance from its lawyer and accountant to get involved in the drafting of key deal documents such as the Letter of Intent, or LOI.
While it may seem counterintuitive to tell a client to hold off on contracting with you, this wise counsel may engender loyalty and trust in the long run. Chances are, your client could end up looking at multiple opportunities before deciding on one to pursue fully.
In addition to its own time spent throughout this process, if your client feels like substantial fees are adding up even while deals it’s exploring are falling through, it will become frustrated quickly. Instead, by encouraging your client to perform its own due diligence up front, this will position you and the other advisors to truly provide value and drive the process from the negotiation of the LOI to the final closing.
That said, if this is the first acquisition your client is looking to transact, it may need more direction. The level of involvement will also depend on the relationships with the advisors up to this point. Even in this case, though, it’s worth discussing with your client when and how you and other advisors should be involved, and how that involvement might evolve over time if it pursues subsequent transactions in the future.
By understanding clients’ goals and experiences, you can help position them for transactions that achieve desired outcomes for their organization and a more fruitful relationship with their advisors, for years to come.
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Jason Correia, CPA, CFE, MSA, is a director at blumshapiro. He can be contacted at jcorreia@blumshapiro.com.
