Choosing a Merger Partner
It’s essential that both the owners and advisers have a good working knowledge of the marketplace where the merger will take place. Both need to pool their information and arrive at a qualified target list of potential partner businesses. We would discourage a blanket market approach and restrict initial approaches to no more than a dozen potential parties. Thereafter detailed information will go to perhaps no more than six of those approached.
Whilst there is little downside from the market knowing you are acquisitive, your practice can be significantly damaged if the market perceives you are a seller. For this reason the process has to be controlled very carefully by advisers.
Where a good adviser will score is in being able to make confidential approaches to those businesses and maintain credibility with all parties. Process at this stage is important – it’s usual for the adviser to make a direct approach, taking soundings with the potential partner businesses before any document is issued.
If selling, it will be necessary to prepare an Information Memorandum (IM) in advance of any approaches, as this will flush out issues within the selling business and will help it gain a clearer view of the strength of its negotiating position and of its likely value in the market place.
If acquiring you need to identify your strategic reasons, specify the key criteria in the target and draw up a shortlist of potential targets.
If selling a business, our recommended route to market is for the adviser making a scripted, personal approach to the long-list, followed by a pre-prepared “taster” document with key data to those expressing an interest. Following that, the short-list of interested parties can sign a non-disclosure agreement (NDA) and the IM can be issued to that closed group.