Closing the deal - getting signatures on the dotted line - is often celebrated as the defining milestone in an acquisition. It is the result of months of effort, and for good reason: it is a moment worthy of recognition. But this is merely one step in a bigger scheme: the M&A lifecycle. A successful acquisition hinges on the many steps and decisions made both before and after signing. This article is all about the first step of preparing and executing the deal: pricing and offer.
Highlights
At this pivotal stage, you’ve identified the perfect M&A target, or perhaps a promising technology company has approached you with a match for your ambitions. Now it is time to make an indicative (non-binding) offer. But be careful - while “non-binding” may sound informal, its implications are far-reaching. In the TMT market, which is a typical multiple-deal-doer market, reputation is everything. Being recognised as a trustworthy bidder or buyer is crucial. A lack of seriousness in your offer could cost you this opportunity and future ones. However, overpaying is equally unwise. So let’s delve deeper into the pricing and offer phase of the M&A cycle to better understand how to navigate the challenges and set the foundation for success.
Imagine you aim to acquire a foreign technology company identified as a strategic fit for diversifying and expanding into new markets. Setting the right initial price requires answering several critical questions. For instance, are your initial assumptions about the strategic fit accurate? What challenges might arise when separating the target from its current structure and integrating it into your business? What synergies and future profitability will the acquisition bring? Which legal and tax structure will best support the transaction?
In this scenario, you face limited (geographical) market knowledge and uncertainty about the target’s management. The vendor has narrowed the field to a select group of potential buyers, granting them access to a virtual data room, but the data is sparse. Beyond the organisational structure, recent annual reports (from the last three years), and next year’s budget, there’s no multi-year financial forecast available, which you need for initial pricing. This is not uncommon in the TMT sector, where valuing emerging technologies can be particularly challenging.
Therefore, your organisation must develop its own multi-year financial forecast. This involves gathering insights from various work streams, such as HR, IT, Tax, and business owners, as well as leveraging (foreign) market expertise and expertise from due diligence, tax, pensions, and valuation specialists. External advisors are often essential, especially when navigating foreign markets. However, managing this process while maintaining confidentiality until the deal is finalised can be challenging. On the one hand, a large, diverse team may generate comprehensive information, but it risks inefficiency. On the other hand, a smaller team might struggle to handle the volume of data required.
What you need is a team of dedicated professionals - efficiently gathering relevant insights, setting priorities, and ensuring no critical information is overlooked. This precision is vital for your valuation model. Missing synergy data, for example, could result in an undervalued offer, leading to elimination from the bidding process. External specialists can streamline operations, but ultimate decision-making must remain internal - and decisions will often need to be made quickly.
Evaluating an opportunity does not end with a valuation analysis; crafting an offer goes beyond simply quoting a number. A strong bid combines a competitive price with an appropriate transaction structure - for all stakeholders, shareholders, and managers - as well as insight into the bidder’s intentions for the future of this business. Building relationships with key decision-makers (on the vendor’s side) and highlighting your advisors’ credibility, can strengthen your position as a serious contender. This approach paves the way for the due diligence phase, where deeper insights confirm your assumptions and may uncover unexpected revenues and cost synergies as well as non-debt stand-alone potential that enhance value creation.
In the M&A world, preparation, reputation, and clarity are essential. Navigating the pricing and offer stage effectively lays the groundwork for long-term success. By making informed decisions and maintaining integrity throughout the cycle, you position your organisation as a credible and competent player in a competitive landscape.
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.
Our team can provide independent financial, M&A and debt/equity advice - whether you are seeking to expand organically or via a strategic acquisition. The team offers extensive experience, global reach, and cross-functional capabilities. We support a range of clients in Technology, Media and Telecom from across the globe, with a view to realise strategic objectives, shape your vision and unlock value at every stage of the deal.
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