In a typical M&A sale process, investment bankers contact all buyers simultaneously when taking a company to market. Buyers are then given a standard window of three to five weeks to execute the nondisclosure agreement (NDA), receive and review the confidential information presentation (CIP), ask questions and submit an indication of interest (IOI). This approach ensures a level playing field, where all parties begin the process at the same time.
While this method is generally effective, there are situations where deviating from the standard playbook may better serve the seller’s interests. It is especially beneficial in the following situations:
- Complex technology: The seller’s technology is critical but inherently challenging for buyers to understand and evaluate.
- Intricate commercial structures: The seller’s commercial arrangements, such as subcontractors, joint venture or tax arrangements, are difficult to grasp.
- Bureaucratic buyers: The most capable buyers are large and/or bureaucratic. As a result, they may require extra time to internally decide how the seller would fit with them and whether to proceed.
- Consultant timelines: The seller’s high value will motivate buyers to retain management or technical consultants, all of whom will require time to complete their analyses.
- Challenging financing: Certain financial buyers may need additional time to arrange their financing, especially for large transactions.
How can the seller give early-look buyers extra time while maintaining a fair M&A process? Here is how to “cut this Gordian knot:”
- Selective access: Only give an “early look” to those buyers that have already shown or are highly likely to have serious interest.
- Transparent communication: The early lookers need to know that they are getting special treatment. In addition to the draft CIP, they should be told the unique logic to them of this potential acquisition.
- NDA requirements: Each early looker must execute an NDA.
- Time management: The early lookers must understand that the full sale process will shortly commence. Therefore, they should wisely use the extra time.
The benefits to early-look buyers and to sellers of this process can be substantial. However, there is a danger that other credible buyers, those that were not granted early looks, might feel disadvantaged. If they perceive that the process is unfair, they will be insulted and/or choose not to participate at all. The best way to alleviate this risk is to be extra attentive to these credible buyers. For example, they can be given access to management and/or be allowed to interview the seller’s technical and financial professionals. It is important to emphasize to these credible buyers that the IOI is to determine which buyers get to the management presentation round, not to decide the winning buyer. Although it is a judgment call, the crocodile tears of buyers that “are not likely to ever get there” must not be a distraction.
Sellers have the power to make the M&A process rules. So, sellers should not be shy about incorporating “early looks” into the sale process if it is to their advantage. What is most important is to keep the playing field sufficiently level to keep all the buyers engaged. ●
Mark A. Filippell is an M&A professional
