VGP’s Sell-Side M&A Transaction – Process Overview (Steps 1 and 2)
Operating / Financial Review
VGP and other advisors* to identify areas for operating and financial performance improvement, and preparation for the M&A process. To the extent possible, company to capitalize on opportunities and implement action plan right away, to show continued progress and the fulfillment of potential.
- Identify and capitalize on opportunities for revenue growth
- Review cost structure and implement cost-saving measures
- Assess and mitigate risks – including by buying additional insurance policies as needed
- Create option / bonus plan for key employees
- R&D tax credit study
- Quality of Earnings report
- Audit of financial statements
- Tax planning – for the company and its shareholders
Preparation of Selling Materials
VGP to prepare selling materials, with the support of management and other advisors.
- Agree on list of prospective buyers to reach out to
(strategic and financial buyers) - Company overview / Investor Teaser (2-3 pages word document or 5-6 pages slide deck)
- Management presentation
— 10-15 pages for Phase I
— 20-30 pages for Phase II - Five-year financial forecast, to include synergies’ analysis with potential strategic buyers
- Preliminary valuation, using Discounted Cash Flow and trading / transaction methods (for internal purposes)
- Presentation describing company’s current technology and roadmap
- Preparation of data room for legal, technical and accounting due diligence (preparation is often started at this stage but concluded at a later date)
* Items in italic to be performed by other advisors, in coordination with VGP
VGP’s Sell-Side M&A Transaction – Process Overview (Steps 3 and 4)
Outreach to Potential Buyers
VGP to reach out to select strategic and financial bidders:
- Socialize opportunity on a no-name basis
- Share company overview / teaser with interested parties
- Negotiate and execute Non-Disclosure Agreements
- Share management presentation
- Prepare management for discussions with potential bidders
- Coordinate and oversee meetings between management and potential bidders
- Oversee continued preparation of data room (portions of which to be performed by company and other advisors)
- Coordinate bidders access to certain information contained in data room
Term Sheet Negotiations
VGP to lead term sheet negotiations and assist on the selection of best offers
- Prospective bidders submit detailed, non-binding term sheets
- Parties negotiate terms and conditions, being mindful of deal structure’s impact on tax planning objectives
- VGP to provide comparison and analysis of different offers
- VGP to advise on the selection of 2-3 bidders to move on to the next phase (it is possible that the strongest bidder will insist on exclusivity for a period of time – say 30-45 days; which depending on how detailed the term sheet is and how favorable the terms are, we may advise in favor of – although our preference is always to have two bidders during Phase II)
* Items in italic to be performed by other advisors, in coordination with VGP
VGP’s Sell-Side M&A Transaction – Process Overview (Steps 5 and 6)
Confirmatory Due Diligence
During this phase, bidders gain full access to the data room, the management team and its advisors. VGP to:
- Oversee data room access
- Compile potential buyers’ questions
- Advise on the best way to answer questions and address areas of concern identified by bidders
- Train and prepare management team for in-depth interviews / meetings with potential buyers. Topics of discussion typically include:
— Company’s business, growth strategy and prospects
— Financial forecast
— Technology demo and product roadmap
— Legal and accounting matters - Coordinate interaction between company’s advisors and bidders’ advisors
Negotiations and Closing
While the term sheet will have covered a number of important terms and conditions, the negotiation and drafting of final deal documents is intense and time consuming. Often, potential bidders will seek to renegotiate T&Cs agreed at the term sheet level due to findings during Confirmatory Due Diligence. VGP’s activities during this phase, include:
- Negotiating final terms and conditions, including, when applicable: (i) earn-outs; (ii) non-competes; (iii) employment agreements for owners; (iv) reps and warranties (and advise on the possible purchase of R&W insurance), etc.
- Minimizing or averting any valuation reduction due to DD findings
- Overseeing the drafting of Sale and Purchase agreement and other transaction documents
