Q: What is best practice now?
A: Entering into the execution of an M&A signals that the company management knows its strategic intent and consequently the desirable outcome and potential cost.
M&A can be pursued for a couple of reasons – to consolidate and fortify against competition by building proverbial ‘castles and moats’ in the markets the firm plays in; or to enter new markets, whether that be with a view to extending a product’s range, market geography, or both. Purchasers have to assess their firm’s ‘distinctive capabilities’ and recognise that – thrilling though the pursuit of a target may be – in the capture, companies (or assets) have to be additive to value or market prominence, as well as able to contribute positively against a financial scoreboard.
If entering new geographies, rather than acquisition, a successful strategy can be entering into a joint venture. Not only are JVs cheaper but a lower risk activity, merging managements’ capabilities. The negotiation of JVs often serves to focus a company on the reality of their leading capabilities, streamlining their activity and improving their ability to deliver.
When buying, an acquirer should properly prepare for acquisition as it is a time-consuming process. Prep will include making a timetable for a transaction and build towards a 100-day post-acquisition plan.
As a seller, you need to keep tension in the deal which is why it is critical to set out key dates after sending out the IM (information memorandum) to possible buyers.
Key dates include:
- prioritising of buyers on the submission list
- initial and subsequent contacts with agreed buyers which will indicate to them when non-binding offers should be forthcoming
- meetings with preferred buyer or buyers and the provision of required additional information either directly or from data room
- letter of intent and terms of agreement with chosen buyer
- buyer audits information (due diligence process)
- lawyers complete contractual and set closing
Do manage your advisors, particularly lawyers who sometimes feel they’re paid to go down rabbit-holes, and guard against the cynical advice of well-intentioned friends.
Q: How do you see it changing in the future?
A: Depending on the economic environment and the cost of capital in the next few years, M&A could boom as players contend with the risks and expenses of embedding AI into their businesses.
Inevitably, AI will play an enhanced role in all businesses, but in M&A, I see AI to be acting as an enthusiastic but inexpert researcher for all stages of a transaction. And I am sure AI will be used for the low-level legal work which should reduce legal fees!
All information exported from AI has to be qualified by someone who knows the industries – and, most critically, who knows the people. Answers from AI are so often based on out-of-date material and conclusions drawn are often wrong.
At the same time, AI rollout seems likely to simplify the act of scaling business – if leveraged properly, this could mean that independents are able to free up capital, reduce costs and compete with larger groups that may have otherwise swallowed them.
Equally so, the ability to scale with AI makes the prospect of acquisition for larger entities that much simpler and more desirable. We hope this is good news for all involved.
Q: What are your three top tips?
1. Properly engage management. When planning to acquire, they need to be engaged across the board in realistic preparation strategies – particularly in regard to validating which alternative business tactics might help them to achieve the most desirable outcome for all. And I highly recommend that the staff occupied with the acquisition are those who are made responsible for its integration into the host business. Do take the benefit from the local knowledge of your staff affected by the transaction. It is amazing that acquirors often do not involve those whose work will include managing the to be acquired assets.
2. Be fearless in asking questions as your assumed answers to those questions are not necessarily right. The last thing you want is to be kicking yourself down the line for finding out too late that you were wrong about something you thought you knew. One question you should absolutely not make a deal without asking is when did the product have its last price increase as that may be the reason for increased revenue.
3. Watch the deal environment day by day because what seemed terrific yesterday may not be so perfect today. Things change – it’s important to remain flexible and allow yourself to change with them. And the trading financials are quite organic! Watch them closely.
About MediaFund
MediaFund has been advising media companies for 35 years. Its focus is on selling companies with respected brands rich in intellectual property and data. Working principally for sellers, MediaFund manages the transactional process from engagement to closing. This involves putting the company / product story into a readable-by-buyers shape so that a non-binding indication of value can be reached. From there, and after some negotiation, we manage the process until completion.
Email: prc@mediafund.co.uk
Mobile: +44 7768 992 374
Web: www.mediafund.co.uk
This article was first published in Issue # 1 of Best Practice in Publishing, a new publication from InPublishing. Click here for links to the other ‘best practice’ articles from the publication.
