Optimising value

With the due diligence phase complete and outcomes interpreted, the focus shifts to the binding offer and execution of the deal. This is often considered as one of the most exciting steps of the M&A lifecycle. It encompasses pivotal tasks such as drafting the share purchase agreement (SPA), securing regulatory approval (see also the article ‘Shape the strategy and identify the deal’, earlier in the M&A lifecycle), preparing transaction financials, and planning for Day 1 of ownership. While the transaction may seem close to completion, it is essential to recognise that meticulous execution can significantly enhance the deal’s ultimate value, such as ensuring a fair settlement and establishing a strong foundation post-acquisition.

The Share Purchase Agreement (SPA)

The SPA is often viewed as a procedural task for lawyers, detailing legal aspects such as warranties, guarantees, and dispute resolutions. However, first and foremost it plays a vital role in defining financial terms and settlement mechanisms for the transaction. Two main pricing mechanisms are used:

• Completion accounts: Traditionally preferred in the US and Asia. This approach calculates the purchase price based on financial statements at the future closing date. Post-closing adjustments are required to finalise the price.
• Locked box: Increasingly popular in Europe and among American private equity firms. This method establishes a fixed price based on the target’s balance sheet at an earlier effective date. On the one hand, it introduces risks for buyers due to the vendor's control during the locked box period. On the other hand, it provides greater clarity, saves time, and allows management teams to focus on integration and business plans.

Informing the regulatory authorities

Once the SPA is signed, regulatory authorities in all relevant markets must be informed. Regulatory approval is a critical step, as objections - sometimes politically driven - can arise unexpectedly. See also the article ‘Shape the strategy and identify the deal’, early in the M&A lifecycle. Conducting detailed analyses during the early stages can help anticipate potential obstacles and enable smoother negotiations and approvals.

Arranging financing

Securing the necessary financing is a crucial part of securing the deal and should be in place ahead of signing the SPA, especially in high profile auctions. TMT companies often have strong credit profiles, driven by the recurring nature of cash flows, which allows buyers to attract more leverage for the buy-out. It’s crucial to properly structure the debt, allowing for sufficient headroom in financial covenants and for upsizing in case of a buy-and-build strategy.  

Delivering the promised returns

The acquisition strategy does not end with signing the SPA. Post-transaction, aligning the acquired company’s financial statements with the buyer’s accounting principles can be challenging. This is where we enter the Purchase Price Allocation (PPA) phase. The purpose of the PPA is to evaluate if the fair value of all assets and liabilities on the opening balance sheet is different from the stated book value. A pre-PPA analysis identifies assets, synergies, and financial impacts beforehand, avoiding post-transaction surprises. Also, to truly unlock the full potential of the deal, a robust integration plan must be in place, which includes preparations for Day 1 and the first 100 days. Both PPA and PMI (Post Merger Integration) are the topics of the next stage of the M&A lifecycle: Delivering the promised returns.  

The M&A cycle in a nutshell

Viewing an acquisition as a series of interconnected phases rather than a one-off transaction is key. From identifying the right deal to integrating the new business into your company. Each decision you make along the way shapes the outcome. Below we have embedded a picture of the M&A lifecycle and a short description of each phase. In a series of articles we delve into each step of the M&A lifecycle, sharing stories and thoughts about each of these phases. 

How Deloitte helps TMT companies

Our SPA Advisory team is a dedicated team of professionals advising on purchase price mechanisms (i.e. locked box or completion accounts), financial definitions and accounting warranties. Our in-depth knowledge and experience with complex deals helps you create solutions for complex pricing challenges whilst avoiding pricing downsides.

Our Debt and Capital Advisory team has extensive experience in raising capital for TMT companies. That includes advising companies on how to position the credit story and go-to-market strategy. We add value to our clients throughout the process by analysing the funding need and assessing suitable structures. We help identify the right lenders and negotiate the most attractive terms and conditions for our clients.  

Would you like to know more? Please contact us via the contact details below.