Title: How to be a successful private M&A player

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Recently, the masses got a taste of business growth in India via the now popular TV show – Shark Tank India. Real-life business transactions, however, are much more complicated and involve several additional steps and processes to complete in order to fall into the “successful transactions” category. An M&A transaction can be considered “successful” if the buyer’s main objectives for the transaction are achieved.

Alas, there is no magic formula to guarantee the success of a transaction. Invariably, buyers have different goals and drivers for their M&A deals, including inorganic growth, expansion of existing portfolio, entry into new markets, vertical integration, or horizontal integration.

So what are the key factors buyers need to keep in mind to maximize their chances of success when closing M&A deals? Let’s discuss the seven most critical elements.

  1. Planning: Inorganic growth through mergers and acquisitions is not just a financial transaction, but a much more complex process that requires careful planning and thought. The benefits of planning in an M&A transaction cannot be overstated. Buyers should carefully select sectors with growth opportunities and invest time and resources in identifying and evaluating the right target. Management capacity is often limited and therefore it is important that time and resources are invested wisely, and that buyers do not recklessly seek out M&A opportunities.
  2. Team: Buyers should plan to have appropriate internal and external teams in place to support them through the M&A journey. External advisers include appraisers, legal, financial, accounting, tax, etc. advisers. Internal teams include the functional teams responsible for business growth, the finance and legal departments and senior management of buyers who are the ultimate decision makers. A well-rounded and functional team with a collaborative approach is essential to successfully completing an M&A transaction.
  3. Evaluation: Overvaluing or undervaluing a target is perhaps the most common factor in the failure of an M&A transaction. Buyers should assess both the intrinsic value of the target based on the size and nature of its operations and its growth potential, as well as the strategic value which is the additional value the buyer can extract from the market. merger and acquisition agreement. If buyers and sellers cannot agree on a valuation, tools such as purchase price adjustments and earn-outs can help the parties close the valuation gap.
  4. Structuring: Structuring an M&A deal is a complex process and depends on various factors such as the nature of the investment (strategic or financial), regulatory restrictions, requirement to obtain governmental/regulatory approvals, regulatory oversight in the sector, etc. Buyers should obtain full legal advice. covering all the bases before finalizing the M&A deal structure, as this can impact overall deal timelines and documentation.
  5. Due diligence: Buyers are increasingly relying on seller’s due diligence instead of conducting full buyer’s due diligence. While this can help speed up transaction times, there are risks of facade by sellers, however. Buyers should ensure that key areas of interest and value drivers are thoroughly reviewed by buyers. Buyers can also request detailed information from sellers at the final documents stage to flush out any important information.
  6. Documentation: A very important facet of an M&A transaction is the allocation of risks between the parties. While any M&A transaction is inherently risky, buyers should seek appropriate protections in the form of comprehensive representations, warranties and indemnities from sellers in transaction documents to protect against potential exposure. . For any areas of risk identified during the due diligence or structuring exercise, buyers can negotiate special protections such as the right to offset any potential loss on future debts, holdbacks, escrow agreements or the exercise of the call option in the event of default or the put option at a premium.
  7. Post-acquisition integration: The successful integration of the target with the group of the buyer is of great importance for any successful merger and acquisition. Buyers should give due consideration to the target’s cultural compatibility, such as company philosophy, chemistry between management and among staff when evaluating the target. Buyers should always be proactive rather than reactive. Buyers should also plan well in advance for integration before the acquisition closes. Management teams should meet and align on the business plan and strategies, and hierarchy and reporting matrix should be established for clear roles and responsibilities. Buyers need to positively engage with target employees to make them comfortable with change and inspire them to drive growth.

Each M&A transaction is unique and the risks associated with a M&A transaction cannot always be foreseen. Buyers should definitely keep the above mentioned tips in mind throughout the M&A journey to increase their chances of success in an M&A deal. Buyers are advised to retain the services of reliable and experienced M&A advisors to assist them in all aspects of the M&A transaction and to ensure the successful closing of the M&A transaction.

“The contents of this document do not necessarily reflect the views/positions of Khaitan & Co but remain solely those of the author or authors. For any other questions or follow-up, please contact Khaitan & Co at [email protected]

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