Lists

Walk me through the sell-side M&A process, including key documents (8 steps)

Plan process - preparing legal due diligence, create a teaser Marketing - Distribute CIM after signing NDA & send teasers Initial Bids - LOIs, evaluate bids on price + certainty of closing Management Presentations - Meets management, sees data room Final Bids - Submit LOIs/purchase agreement drafts Negotiations - Finalize purchase agreement, negotiate reps/warranties Signing - Execute a definitive purchase agreement Closing - Obtain regulatory approval, fund transaction

You’re representing a US coffee producer trying to sell your company. What buyers are you looking for (4 categories)?

1) Strategic (diff industry -> downstream or upstream so if coffee mug, drinkware/drink company) 2) PE (same industry -> consumer for coffee) 3) International (looking to US market entry/distribution) 4) Competitors (looking to consolidate)

What makes a company a good acquisition candidate for a strategic buyer (10 total)?

Many reasons (5) it could be, including: 1) Geographic expansion/product diversification (has a market/customer base they want to tap into) - Increases TAM, enter new regions, reduces concentration/risk, enables cross-sell 2) Market dominance (increase market share) & tap into a top 2 position 3) Vertical integration 4) Reduce Taxes 5) Undervalued Seller 6) Economics of scale FAKE REASONS (4): 1) Acqui-hire 2) patent 3) ego 4) Defensive move to pre-empt competitors (if developing a quickly competing product)

What are the key factors that impact the accretion/dilution of a transaction (4.5-6 factors)?

(accretion) Purchase price cost & type of financing (relative valuations if stock) Synergy amount other one-time transaction & integration fees (dilution) Dis-synergy Integration fees & restructuring charges (as stated above) Financing structure charges

What are the main types of dis-synergies?

1) customer attrition 2) key employees leaving 3) cultural clashes 4) distraction of management 5) loss of favorable supplier terms 6) overlapping products cannibalizing sales 7) integration expense 8) regulatory costs

What should a company consider when decided whether to pursue M&A now or 6 months down the line (6-8)?

Market conditions: Are valuations favorable now? Could multiples change? Interest Rate Environment: Financing costs may rise/fall Regulatory Landscape - antitrust/industry regulations Competitive dynamics - are other buyers looking? Target’s performance trajectory - is target’s valuation likely to increase/decrease? Integration readiness - does acquirer have bandwidth to integrate? Stock price - if paying with stock, is acquirer’s share price at a favorable level? Strategic urgency - how critical is the acquisition to company’s strategic plan?

Why would a company want to sell/divest a part of its business?

May lead to a higher valuation Simplifies operational complexity Focus on core business (both from management & operational perspective) Leads to a cash infusion Strategic Flexibility Can improve margins (especially if the division is failing or capital-intensive)

Why might governments seek to deter/block inter-company M&A transactions (7)?

Antitrust Market concentration National Security Consumer protection Systemic Risk Labor Market impact Data privacy

Why would 2 companies choose to enter into a joint venture (7 reasons)?

Collaborate while maintaining independence Risk-sharing (so not offloading heavy amounts of risk to one party) Complementary Capabilities Market Entry Resource Pooling Strategic Testing Regulatory Considerations

What key sections would you include in a pitchbook to sellers?

1) Executive summary 2) Strategic rational 3) Target overview (company product, history, customer, strategy) 4) Industry analysis 5) Valuation analysis 6) Historical/Projected Financials 7) Accretion/Dilution 8) Transaction Structure 9) Risk Factors If pitching to a prospective client, also include: 1) Potential buyers & rationale 2) Process & Timing 3) Transaction Credentials 4) Bank Credentials

Besides the IS and BS, what else would you ask for to evaluate an acquisition?

Cash flow statement Performance for past X years Short bio on the management team Deal terms, including asking price and type of finance & debt schedule (with covenants, maturities, change-of-control provisions) Comparison to other deals in the space (if there are any) --------------------- Management projections & model with assumptions Customer & revenue breakdown Industry & competitive landscape analysis Due diligence reports Tax structure Off-balance sheet obligations (operating leases, litigation, pension obligations)

What are the main ways to value a company? What are the key features?

DCF LBO (LFCF, CoE Discount Rate, targetting an IRR for purchase price) Precedent Transactions Public Comps Sum of the Parts Liquidation Valuation (Equity -> doesn't discriminate between assets) Net Asset Value Adjusted Present Value Analysis (adjusting UFCF by Unlevered CoE and subtracting out projected interest payments) M&A Premiums Analysis Dividend Discount Model Embedded Valuation Model Future Share Price Analysis