Now that you’ve signed the term sheet - Heads of Terms (Heads), or Letter of Intent (LOI) – you’re likely wondering – what’s next?
Having been involved in hundreds of mid-market transactions, Roger Forshaw – Director and fully qualified ICAEW Corporate Finance professional – highlights some recurring themes that are key to ensuring a smooth process from entering exclusivity through to completion.
Choose the Right Lawyer, or Pay the Price
Selecting the right lawyer is a pivotal decision: the deals where clients have gone against the advice of their trusted adviser live long in the memories of all concerned.
An inexperienced lawyer can lead to protracted negotiations over moot points, with little commercial consideration of the wider deal dynamics. This can lead to delays, avoidable costs, and sometimes even jeopardise the deal.
Here are some key considerations when choosing the right lawyer:
- Are they experienced in deals of a similar size and nature? You can always ask for references.
- Are you using them purely ‘on price’? Be careful, there is far more at stake than the legal fee.
- Have you considered the recommendations of your deal team? The individuals at these firms of lawyers are on the panel because they are tried and tested, and trusted.
- Does your own lawyer primarily deal with matters such as family law or property matters? This is a recipe for problems down the line.
- Have you taken time to get to know your chosen lawyer, to ensure they tick all the boxes and that they will have a great working relationship with both you and your deal team? Lawyers that choose to be divisive will cost you in the long run.
- Have you checked your preferred lawyer’s ongoing availability, even beyond the anticipated completion date? You don’t want them tied up on other matters or on annual leave when they are needed most!
Remember that whilst minimising costs is important, cutting corners on your legal representation can prove costly in the long run.
Build Trust with the Buyer
Trust and mutual understanding are crucial, especially in those make-or-break moments. A one-to-one conversation away from the tension of accountants and lawyers can often make all the difference.
Invest time and effort into forging a strong relationship with the prospective buyer, both on a professional and personal level.
Strong relationships often lead to quicker resolutions of any sticking points. Remember the deal is an agreement between you and the buyer, so don’t let advisers come between you. Experienced advisers know when to be firm, when to take a commercial view, and when to just stand back.
Balance Drive & Patience
You’ll hear the expression, “time kills deals”, and it does.
But many aspects on the road to completion just need to take their course. An experienced lead adviser will sense where matters are taking undue time, and act accordingly. Keep your deal team fully in the loop, giving them a full overview of matters that arise.
Trust in the tried and tested process that is underway. Diligently provide the information and explanations requested by the buyer: leave as little room for assumption and presumption as possible.
Above all, avoid attempts to move completion dates back unnecessarily. Literally anything can happen; we have seen it all! From lost contracts and acts of God, to sporting accidents incapacitating key stakeholders.
Choose Your Inner Circle Carefully
Remember the saying, “loose lips sink ships”.
In most cases, it's best to keep the deal confidential until it has completed, telling only those within your inner circle of trust. Controlling the messaging can be crucial to ensure key employees on both sides are not lost. Consider the use of non-disclosure agreements for key employees to ensure the message about confidentiality is crystal clear.
In rare instances, leaks do happen so it’s always helpful to have in mind a backstory: seeking a partner/investment for expansion or an unsolicited approach from a potential buyer (why wouldn’t you hear what they’ve got to say!) are just a couple of options.
Maintain Focus on Your Valuable Asset
This process will undoubtedly be a significant distraction, but don't let it lead you astray – your business must always come first so be very careful not to take your eye off the ball.
It’s not uncommon for business owners to become so embroiled in the details of the deal (or indeed focused on that lifetime holiday) that key financials can suffer and a buyer will, at best, look to renegotiate the deal.
Best advice is to continue making decisions for the long-term good of the business, whether that be in relation to key employees, accounting or investment decisions.
There may be some decisions where buyer involvement is necessary and further negotiation required, but your deal team will pick up on these as they arrive and advise you accordingly. Major capex is just one example, where your deal team may seek to exclude any associated debt from the deal calculations as the capex is for the future benefit of the buyer.
It’s also essential to maintain business integrity and not manipulate numbers, as honesty and trust are the fundamental foundations of any deal.
Remember Your Initial Motivations
Although the going will inevitably get tough at times, remember the reasons you came into this process and focus on the outcomes that will achieve these objectives.
Whilst many deals run smoothly throughout, some can be a rollercoaster which can lead to deal fatigue, especially in the weeks leading up to completion, and you might question whether it’s all worthwhile.
Rest assured, there is very little your deal team will not have seen before and their seasoned advice – “it will all be worth it in the end” – is rarely wrong.
It’s key to not become complacent once we get into legals in order to successfully navigate the process through the completion.
Following these simple tips and always making sure your deal team are in the loop can pay dividends, ensuring you will be celebrating a successful sale before you know it.
T: +44 (0) 161 359 4400
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Lawrie@BenchmarkIntl.com
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL:
Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $10 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook’s Global League Tables.