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M&A myths: why running strict process deadlines doesn't always yield the best results

If you have ever been involved in the sale of a business or you're in the process of speaking to advisors, you will likely be told that a strict sale process with firm deadlines is essential. Phrases such as "competitive tension" and "process momentum" are used regularly as a way of advisors claiming to add value for their clients. Whilst deadline driven processes have their place, the reality is that they are actually detrimental in a variety of situations.

Firstly, it's worth making the distinction between the two key buyer groups that you may be dealing with as part of any transaction - private equity and trade acquirers.

There is no doubt that private equity houses are able to move quickly and meet tight deadlines. They are highly experienced investors, operating in a competitive market and must therefore be capable of making efficient decisions or they will be left behind. Like any buyer, however, they need to be fully informed about an opportunity in order to put their best foot forward. Advisors running processes with tight deadlines and a limited supply of quality information may obtain high initial offers, however more often that not this will lead to "price chipping" later in the process. Not only is this negative in terms of the sale price being achieved, it also risks the deal falling over and a substantial amount of cost being incurred. Deliverability is therefore key - having one credible offer from a fully informed buyer is significantly more attractive than five flimsy offers from parties taking a "punt" in order to stay in the process.

When dealing with trade acquirers, flexibility in the process is even more important. Large corporates will often have specific teams or individuals responsible for executing acquisitions. Like private equity, these individuals are experienced in M&A and should help to accelerate a transaction process. Unfortunately, these individuals are unlikely to have the authority to make offers without prior board approval. More often than not, the internal steps required within a large organisation for authorisation of an offer are numerous and cumbersome. Whilst this can be frustrating, it isn't a problem provided that these steps are understood and the sale process is tailored accordingly.

Giving trade acquirers early visibility of an acquisition opportunity is therefore vital. Sending over a marketing document and telling them that they have two weeks to make an offer simply won't work with most corporates, and seriously risks losing a party which may otherwise have made the most attractive offer. Instead, engaging with trade acquirers prior to commencing a formal process and highlighting that an opportunity is upcoming is beneficial. This will allow the M&A team to start their internal steps so that they can meet the required deadlines in due course.

There is, of course, no one size fits all approach which will achieve the optimum result for all vendors. Each business is unique and the sales process should be tailored to account for the internal factors and external environment which will influence the outcome. Don't allow advisors to push an aggressive and uninformed approach - forethought and flexibility will deliver the result that you deserve.


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