3 Key Issues To Outsource When Conducting an M&A Deal

Of considerable interest is the study of existing approaches to determining the value of the company – the object of the transaction, as well as possible options for changing it.

How to Conduct M&A Deal from the Side of Seller?

When considering takeovers, it should be noted that two (or more companies) may participate, among which one company acquires another and establishes control over it. Usually, the buying company is larger and stronger than the target company, that is, the company being acquired. In such transactions, the smaller company ceases to conduct its economic activities independently, since the buying company manages the business on its own behalf, less often – the target company becomes a subsidiary. However, the shares of the companies participating in the transaction do not cease to circulate on the stock market, unlike the merger transactions.

On the seller’s side, services may include:

  • management of the entire sales process;
  • consulting on pre-sale preparation;
  • preliminary cost analysis;
  • identification of potential buyers;
  • contacting potential buyers in order to identify their interest in the transaction;
  • presentation of the business to potential buyers, advice in choosing the best offer to continue the sale process;
  • advising in the course of the negotiation process, including on the structuring of the transaction;
  • advising on the determination of commercial terms in contracts.

This method of assessing the value of companies is widely used in countries with a developed stock market. But in the conditions of imperfection and underdevelopment of the stock market, the use of this method is rather difficult, due to investors ‘distrust of the stock market indicators in terms of companies’ capitalization. The discount rate should reflect the cost of attracting all sources of equity capital, taking into account their weights by the relative contribution to the total (share) capital of the company.

What Should You Outsource when Conducting an M&A Deal?

There are 3 main issues to outsource when conducting an M&A deal:

  1. Obtaining the most favorable terms of sale: prices, other financial and non-financial conditions (in particular, regarding warranties and representations). This is achieved through:
  • organization of the auction and maximum coverage of potential buyers, including foreign investors;
  • effective organization of the sale process due to the accumulated experience in conducting transactions.
  1. The minimal distraction of personnel from operational business processes. Hiring a consultant after attempting to sell on its own reduces the likelihood of sale and achievement of the optimal price.
  2. Finding the best deals in terms of purchase objectives and potential prices. This point is of the greatest importance for foreign companies, which may not know in detail the landscape of potential deal objects, including their readiness for a deal.

The nature of the transaction is another difference between the transactions under consideration. When talking about a merger, it is common to understand a friendly deal, regardless of whether one company buys another. However, in the case of a takeover transaction, there is often talk of a hostile nature or takeover by one company by another, which does not consider the transaction to be carried out.

Conglomerate mergers, in turn, are also subdivided into several subspecies:

  • pure conglomerate mergers that do not imply any commonality;
  • mergers with market expansion, characterized by the acquisition of additional channels for the sale of products and services;
  • mergers with the expansion of the product line, the result of which is the consolidation of non-competitive products, production processes, etc.