Buy-Side transactions refer to transactions made by companies that purchase other businesses, either entirely or in business segments.
Companies with an opportunistic strategic plan for growth may look to acquire businesses that complement, enhance, or diversify their current trajectory.
Understanding the acquisition, or buy-side process, is critical to completing a successful deal that matches the expectations of both the buyer and the seller.
The Role of an Investment Banker
Investment Bankers and many M&A Firms can play an important role in the acquisition process. Generally, these professionals will help companies identify potential acquisition targets, perform due diligence, prepare valuation analysis, help negotiate the terms of the deal, and work to close the deal. They usually charge a fee based on the purchase price, but they rarely assist with the post-purchase integration process, perhaps the most important part of a successful acquisition.
The Value of a Buy-Side Advisor
Most small and mid-size companies looking to grow through an acquisition, do not have team members that have the experience or skillset needed to acquire a business, let alone integrate it once the deal is done. They also may not have the capital resources to cover the cost of high transaction fees; and further, they often do not need to search for a target company to acquire because the opportunity is already known.
All companies looking to grow through acquisition need the expertise of an experienced buy-side advisor in the same way a company looking to exit their business, needs an expert advising them through the intricacies of a deal.
While some of the duties of an acquisition advisor overlap with that of an investment banker, the retained advisor is more deeply involved with the acquirer to prepare for what happens after the deal closes. Entrepreneurs looking to grow through acquisitions often “love the thrill of the hunt,” but rarely prepare or understand what to do after the purchase is completed.
The Role of a Buy-Side Advisor
A buy-side advisor fills many roles serving small and mid-size growth-minded company executives.
An experienced buy-side advisor may assist with the following:
- Assess the acquirer’s readiness for an acquisition by reviewing the objectives, financial resources, and human capital available.
- Prepare initial due diligence sufficient to assess the overall quality of the target company, and assess the financial condition of the target. The buy-side advisor also assesses the target company’s readiness to be acquired, merged, or joint ventured into the acquirer’s business. A seasoned advisor can quickly assess the likeliness of completing a deal to minimize wasted time and resources.
- Prepare cashflow analysis and detailed proforma projections of the business to be acquired. This may lead to assessing the range of monetary values to be assessed for the target company.
- Help prepare and draft the Letter of Intent (LOI) and/or the Memorandum of Understanding (“MOU). Goals of preparing these documents include providing enough detail to summarize the terms of the deal as well as providing nonbinding conditions if representations are not as initially presented. This process also might help guide the legal experts efficiently when it comes time to prepare the purchase documents.
- Complete comprehensive due diligence for the purchase. The goal of this process is to minimize the risk(s) of the acquiring company.
- Evaluate various funding options if the purchasing company does not want to fund all of the acquisition.
- Coordinate with the legal team and prepare/review all the documents needed for a Purchase Agreement.
- Asses the seller’s representations, covenants, and guarantees, if applicable.
- Prepare for post-purchase integration.
Perhaps the most overlooked step in completing a transaction is preparing, in advance, for the integration of the acquired business. There will be many issues to consider related to both the buyer’s and seller’s customers, products, services, accounting practices, and especially people. An expert in buy-side transactions is there to help the acquirer successfully integrate the purchased company and to determine if the seller’s covenants are met. Additionally, an important part of integration is the process of monitoring and measuring the results of the newly combined acquisition.
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