| Introduction |
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1 | (8) |
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3 | (1) |
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Conventions Used in This Book |
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4 | (1) |
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4 | (1) |
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4 | (1) |
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How This Book Is Organized |
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5 | (1) |
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Part 1 Planning to Do a Transaction |
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5 | (1) |
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Part 2 Marketing the Transaction |
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5 | (1) |
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Part 3 Selling the Transaction |
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6 | (1) |
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Part 4 Concluding and Combining |
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6 | (1) |
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6 | (3) |
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6 | (1) |
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7 | (1) |
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7 | (2) |
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PART 1 PLANNING TO DO A TRANSACTION |
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9 | (92) |
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Chapter 1 Explaining Mergers and Acquisitions |
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11 | (16) |
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11 | (1) |
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12 | (1) |
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Introducing Important Terms and Phrases |
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13 | (1) |
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13 | (1) |
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14 | (1) |
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15 | (1) |
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Transaction (also known as the deal) |
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16 | (1) |
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16 | (1) |
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17 | (1) |
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17 | (1) |
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18 | (1) |
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19 | (1) |
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19 | (1) |
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20 | (1) |
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20 | (1) |
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20 | (1) |
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Considering the Costs Associated with M&A |
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21 | (1) |
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Tallying advisors' fees and other costs |
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21 | (1) |
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22 | (1) |
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Making post-closing adjustments |
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22 | (1) |
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23 | (1) |
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Defining Types of Companies |
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23 | (1) |
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24 | (1) |
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24 | (1) |
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Middle market and lower middle market company |
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24 | (1) |
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Large company (and beyond) |
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25 | (2) |
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Chapter 2 Learning M&A Rules and Decorum |
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27 | (10) |
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Knowing How the Game Is Played |
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27 | (1) |
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Providing Updates to Employees |
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28 | (1) |
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29 | (1) |
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29 | (1) |
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Discerning Two Types of M&A Processes |
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30 | (1) |
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31 | (1) |
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Mastering the rules of the road for sellers |
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31 | (1) |
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Examining the rules of the road for buyers |
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32 | (1) |
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Determining which bid is better |
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33 | (1) |
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33 | (4) |
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Chapter 3 Utilizing the M&A Process |
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37 | (6) |
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38 | (1) |
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Reviewing the M&A Process |
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38 | (1) |
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Step 1 Create a target list |
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39 | (1) |
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39 | (1) |
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Step 3 Send or receive a teaser or an executive summary |
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39 | (1) |
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Step 4 Execute a confidentiality agreement |
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40 | (1) |
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Step 5 Send or review the confidential information memorandum (CIM) |
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40 | (1) |
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Step 6 Solicit or submit an indication of interest |
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40 | (1) |
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Step 7 Conduct management meetings |
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41 | (1) |
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Step 8 Write or review the letter of Intent |
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41 | (1) |
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Step 9 Perform due diligence |
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41 | (1) |
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Step 10 Draft the purchase agreement |
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41 | (1) |
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Step 11 Show up for closing |
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42 | (1) |
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Step 12 Deal with post-closing adjustments and integration |
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42 | (1) |
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Chapter 4 Making Sense of the Economics of M&A |
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43 | (24) |
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44 | (1) |
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Weighing Microeconomlc Factors |
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44 | (1) |
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Realizing that M&A is supply-side |
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45 | (1) |
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Coming to grips with a limited supply |
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45 | (1) |
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Avoiding a "random sample of one" |
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46 | (1) |
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47 | (1) |
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Demanding a limited resource |
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47 | (1) |
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47 | (1) |
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Observing Systemic Issues |
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48 | (1) |
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Detecting Tailwinds and Headwinds in M&A |
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49 | (1) |
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Considering interest rates and valuations |
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50 | (1) |
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Managing the issue of replacement income |
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50 | (1) |
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Putting Together Your M&A Plan |
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51 | (1) |
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51 | (9) |
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60 | (7) |
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Chapter 5 Finding Buyers and Sellers |
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67 | (34) |
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Collaborating to Build a List |
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68 | (1) |
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68 | (1) |
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Expanding (and winnowing) the list |
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69 | (1) |
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70 | (3) |
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Putting Together the Tools |
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73 | (1) |
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Tempting buyers with an anonymous teaser |
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73 | (1) |
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Keeping it short and sweet |
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74 | (1) |
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Including only high-level financial info |
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75 | (1) |
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Touting key selling points |
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75 | (1) |
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Executing a Confidentiality Agreement (CA) |
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76 | (1) |
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Considering the gist of a CA |
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77 | (1) |
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Figuring out which party sends the CA |
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78 | (1) |
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Determining who gets more value out of the CA |
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78 | (1) |
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Handling a Breach of Confidentiality |
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78 | (1) |
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79 | (1) |
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Thinking long and hard about legal action |
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80 | (1) |
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Keeping the Cat in the Bag: Advice for Buyers |
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80 | (1) |
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Involving employees and advisors |
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80 | (1) |
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Discussing the deal in public |
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81 | (1) |
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82 | (1) |
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83 | (2) |
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85 | (2) |
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Treading carefully when approaching competitors |
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87 | (1) |
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88 | (2) |
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Receiving a call from a seller |
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90 | (1) |
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90 | (1) |
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Having a thesis when buying |
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91 | (2) |
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Using a successful script |
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93 | (1) |
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You're having a serious conversation! What now? |
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94 | (1) |
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95 | (1) |
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"Just send me an email and I'll find the right person for you" |
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95 | (1) |
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"We don't do that kind of thing" |
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96 | (1) |
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96 | (1) |
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"I'm so-and-so's assistant -- I'll forward your email" |
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96 | (1) |
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97 | (4) |
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PART 2 MARKETING THE TRANSACTION |
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101 | (76) |
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Chapter 6 Explaining and Influencing Valuation |
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103 | (26) |
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Pondering the Meaning of Valuation |
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104 | (1) |
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Seeing valuation as a confluence of various factors |
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105 | (1) |
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Seeing valuation as more than just price |
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105 | (1) |
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Seeing valuation as being at the intersection of many variables |
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106 | (3) |
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Realizing the limits of a valuation report |
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109 | (1) |
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Comparing Different Points of View |
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110 | (1) |
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Looking at the business owner point of view |
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110 | (1) |
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Adopting the investment banker point of view |
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111 | (1) |
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Opting for a more complete picture |
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112 | (1) |
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Going for a pro forma valuation |
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113 | (2) |
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Prioritizing Net-versus-Gross Proceeds |
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115 | (1) |
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Analyzing a Valuation Report |
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116 | (1) |
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Looking at transaction comparables |
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116 | (1) |
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Working with trading comparables |
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116 | (1) |
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Using leveraged buyout (LBO) analyses |
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117 | (1) |
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Opting for a discounted cash flow (DCF) analysis |
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118 | (1) |
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Measuring Returns for the Buyer |
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118 | (1) |
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Gauging internal rates of return (IRRs) |
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118 | (1) |
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119 | (1) |
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Cutting to the Chase: Give Us the Numbers! |
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120 | (1) |
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121 | (1) |
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121 | (4) |
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Impacting valuations negatively |
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125 | (4) |
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Chapter 7 Creating and Reviewing an Offering Document |
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129 | (32) |
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130 | (1) |
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Revealing the Offering Document's New Look |
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131 | (1) |
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Inspecting the basics of the offering document |
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131 | (1) |
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Compiling the executive summary |
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132 | (4) |
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Showcasing the company's background |
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136 | (3) |
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Sharing the Go-to-Market Strategy |
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139 | (1) |
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Describing the market and products |
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139 | (4) |
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143 | (1) |
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Compiling historical financial |
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143 | (2) |
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Including financial projections |
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145 | (1) |
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Planning for a Smooth Transaction |
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146 | (1) |
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Finalizing financial statements |
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147 | (1) |
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Working with accountant-prepared statements |
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147 | (1) |
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Comparing audits and reviews |
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148 | (2) |
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Going the compilations route |
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150 | (1) |
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150 | (2) |
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Compiling a quality of earnings (QoE) report |
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152 | (3) |
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Digesting a Company's Financials |
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155 | (1) |
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155 | (1) |
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156 | (2) |
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158 | (3) |
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Chapter 8 Reading and Writing the Offers |
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161 | (16) |
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Examining the Indication of Interest (IOI) |
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162 | (1) |
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Determining the purpose of indicating interest |
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162 | (1) |
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Including important information |
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163 | (3) |
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Signaling Sincerity with a Letter of Intent (LOI) |
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166 | (1) |
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Recognizing the Salient Issues in the LOI |
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167 | (1) |
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Valuation and deal structure |
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168 | (1) |
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169 | (1) |
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Representations and warranties |
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170 | (1) |
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170 | (1) |
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171 | (1) |
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171 | (1) |
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172 | (1) |
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172 | (1) |
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172 | (1) |
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Nondisclosure and publicity |
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173 | (1) |
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173 | (1) |
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Governing law or jurisdiction |
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173 | (1) |
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Agreeing to and Extending Exclusivity |
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173 | (1) |
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Considering exclusivity in preemptive bids |
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174 | (1) |
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Running out of time: Prolonging exclusivity |
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174 | (1) |
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Learning how buyers actually come up with bids |
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175 | (1) |
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176 | (1) |
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PART 3 SELLING THE TRANSACTION |
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177 | (90) |
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Chapter 9 Selecting Advisors |
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179 | (14) |
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Choosing Wisely: Identifying Ideal Advisors |
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179 | (2) |
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181 | (1) |
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CFO or another financial bigwig |
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181 | (1) |
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Corporate development personnel |
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182 | (1) |
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182 | (1) |
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Consulting wealth advisors when you're ready to sell |
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183 | (1) |
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Considering an intermediary |
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183 | (1) |
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Lawyering up on both sides |
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184 | (1) |
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Accounting and auditing for dealmakers |
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185 | (1) |
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185 | (1) |
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Recruiting more consultants to the buyer's team |
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186 | (2) |
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Avoiding Communication Breakdowns |
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188 | (2) |
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Getting Your Banker Involved |
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190 | (3) |
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Chapter 10 Hiring an Investment Banker |
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193 | (14) |
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Examining the Role of Investment Bankers |
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193 | (1) |
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194 | (1) |
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Knowing the difference between a business broker and an investment banker |
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195 | (1) |
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Appreciating the Most Important M&A Skill |
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196 | (2) |
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Working with an Investment Banker |
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198 | (1) |
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199 | (2) |
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201 | (1) |
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Timing the Deal: How Long Should a Process Take? |
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201 | (1) |
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Asking Interview Questions |
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202 | (1) |
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Asking the Ask Price Question |
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203 | (1) |
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Checking an Investment Banker's References |
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204 | (3) |
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Chapter 11 Arranging Meetings Between Buyer and Seller |
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207 | (12) |
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Recognizing the Importance of Meeting in Person |
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208 | (1) |
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Arranging Management Meetings |
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209 | (1) |
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Assembling the key players |
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210 | (1) |
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210 | (1) |
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Setting the meeting agenda |
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211 | (1) |
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Perfecting the Seller's Presentation |
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212 | (1) |
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Gathering the right material |
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212 | (1) |
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Making the seller's presentation shine |
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213 | (1) |
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Preparing Buyers for Management Meetings |
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214 | (1) |
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Completing a walk-through |
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214 | (1) |
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Being careful with attendees |
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215 | (1) |
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Putting away those darn devices |
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215 | (1) |
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Determining Whether the Meeting Went Well |
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216 | (3) |
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Chapter 12 Financing the Transaction |
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219 | (26) |
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Exploring Financing Options |
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219 | (1) |
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220 | (1) |
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Providing cash at closing |
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221 | (1) |
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Using the buyer's own cash |
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221 | (1) |
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Having the buyer borrow money |
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222 | (1) |
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Having the buyer team up with other investors |
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222 | (1) |
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Having the buyer seek financial help from the seller |
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223 | (2) |
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Having the buyer use equity |
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225 | (1) |
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225 | (1) |
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Having the buyer use contracts |
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226 | (1) |
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226 | (2) |
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Taking a Closer Look at Investors |
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228 | (1) |
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Contrasting Institutions and individuals |
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228 | (2) |
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Looking at private equity (PE) firms |
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230 | (2) |
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Dealing with a family office |
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232 | (1) |
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Considering a strategic buyer |
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233 | (1) |
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Going with a fundless sponsor |
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234 | (1) |
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Keeping it on an individual basis |
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234 | (1) |
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Striking the Right Type of Deal |
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234 | (1) |
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Noting the differences between majority and minority investments |
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235 | (1) |
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Understanding supermajorlty rights |
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235 | (1) |
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236 | (1) |
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Explaining how EBITDA impacts deals |
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237 | (1) |
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Comprehending the cost of capital |
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237 | (2) |
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Looking at lines of credit |
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239 | (3) |
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Financing a Problem Child |
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242 | (1) |
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Debt is greater than purchase price |
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242 | (1) |
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The business has operating losses |
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243 | (2) |
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Chapter 13 Learning How to Negotiate Successfully |
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245 | (22) |
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245 | (1) |
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246 | (1) |
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Reading the other party's situation |
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246 | (2) |
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Providing information to the other side |
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248 | (1) |
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Using Successful Negotiating Tactics |
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249 | (1) |
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Negotiating with the decision-maker |
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249 | (1) |
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250 | (1) |
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Remaining on an even keel |
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250 | (1) |
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Remembering your ABNs: Always be negotiating |
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251 | (2) |
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Digging into the nitty-gritty of negotiating |
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253 | (2) |
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Settling Common Transaction Issues |
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255 | (1) |
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256 | (1) |
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Using an earnout to prove valuation |
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256 | (1) |
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Settling a valuation disagreement with a seller note |
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257 | (1) |
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Paying for a company with stock |
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257 | (1) |
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Selling less than 100 percent of the company |
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258 | (1) |
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Including a consulting contract |
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259 | (1) |
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Avoiding Common M8 A Negotiating Mistakes |
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259 | (3) |
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Surviving Unforeseen Twists and Turns |
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262 | (1) |
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Putting a deal gone sideways back on track |
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262 | (1) |
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Negotiating in good faith |
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263 | (1) |
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Letting the other side win the last skirmish |
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264 | (1) |
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Dealing with Renegotiation |
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264 | (1) |
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Comprehending Why Transactions Fall |
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265 | (2) |
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PART 4 CONCLUDING AND COMBINING |
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267 | (58) |
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Chapter 14 Confirming Due Diligence |
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269 | (14) |
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Digging Into the Due Diligence Process |
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270 | (1) |
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Recognizing the key focal points of due diligence |
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270 | (1) |
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Reconciling bank statements |
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271 | (1) |
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Getting the process underway |
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271 | (1) |
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Allowing enough time for due diligence |
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272 | (1) |
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272 | (1) |
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Conveying the due diligence info to the buyer |
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273 | (1) |
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Running the company during due diligence |
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274 | (1) |
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Looking More Closely at the Details of Due Diligence |
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275 | (1) |
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275 | (1) |
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276 | (1) |
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276 | (1) |
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277 | (1) |
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Real estate and facilities info |
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278 | (1) |
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278 | (1) |
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279 | (1) |
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279 | (1) |
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279 | (1) |
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279 | (1) |
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Debt and financial dealings |
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280 | (1) |
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280 | (1) |
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280 | (1) |
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281 | (1) |
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281 | (1) |
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281 | (1) |
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281 | (1) |
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Requesting Additional Information |
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281 | (2) |
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Chapter 15 Documenting the Transaction |
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283 | (10) |
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284 | (1) |
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284 | (1) |
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Redlining the initial draft |
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284 | (1) |
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Navigating the Final Purchase Agreement |
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285 | (1) |
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Confirming the name, rank, and serial number of the deal |
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286 | (1) |
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Determining what's being sold, for how much, and when |
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287 | (1) |
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Knowing what to bring to the closing |
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287 | (1) |
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Reviewing the representations and warranties |
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288 | (2) |
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The Rise of Reps & Warranties (R&W) Insurance |
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290 | (1) |
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291 | (1) |
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Looking at the exhibits and schedules |
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291 | (2) |
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Chapter 16 Closing and Integrating the Acquisition |
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293 | (16) |
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Gathering the Necessary Parties |
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294 | (1) |
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Walking Through the Closing Process |
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294 | (1) |
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Reviewing the flow of funds statement |
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295 | (2) |
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Signing the final purchase agreement and other documents |
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297 | (1) |
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Distributing the funds: Show me the money! |
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298 | (1) |
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299 | (1) |
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Tying Up Loose Ends Shortly after Closing |
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299 | (1) |
|
Allowing time to fully close the books |
|
|
299 | (1) |
|
Making a working capital adjustment |
|
|
299 | (1) |
|
Shifting from Entrepreneurial to Professional |
|
|
300 | (1) |
|
|
|
300 | (1) |
|
Telling the seller's employees about the deal |
|
|
301 | (1) |
|
Making a good first impression |
|
|
302 | (1) |
|
Making a media announcement |
|
|
302 | (1) |
|
Following Through: The Deal After the Deal |
|
|
303 | (1) |
|
Closing the loop on post-closing adjustments |
|
|
303 | (1) |
|
Wrapping up the contingent payments |
|
|
304 | (1) |
|
|
|
304 | (1) |
|
|
|
304 | (1) |
|
|
|
304 | (1) |
|
|
|
305 | (1) |
|
|
|
305 | (2) |
|
Making claims against escrow |
|
|
307 | (2) |
|
Chapter 17 Ensuring a Successful Acquisition |
|
|
309 | (16) |
|
|
|
310 | (1) |
|
Assembling a buyer's transition team |
|
|
310 | (1) |
|
Backstopping problems with a bench strength plan |
|
|
311 | (1) |
|
Determining the level of autonomy |
|
|
311 | (1) |
|
Covering the carve-out bases |
|
|
312 | (1) |
|
Planning the first 90 days |
|
|
313 | (2) |
|
Culling Products and Services |
|
|
315 | (1) |
|
Combining Operations, Administration, and Finance |
|
|
316 | (2) |
|
Handling Personnel: Successful First Steps for New Owners |
|
|
318 | (1) |
|
Addressing cultural differences |
|
|
318 | (1) |
|
|
|
319 | (1) |
|
Remembering who's in charge: You! |
|
|
319 | (1) |
|
Setting a high bar and being consistent |
|
|
320 | (1) |
|
|
|
320 | (1) |
|
Acting like a leader at all times |
|
|
321 | (1) |
|
|
|
321 | (1) |
|
Instituting accountability |
|
|
322 | (3) |
|
|
|
325 | (14) |
|
Chapter 18 Ten Transaction Pitfalls |
|
|
327 | (4) |
|
Is the Deal Too Good to Be True? |
|
|
327 | (1) |
|
How Is the Buyer Financing the Deal? |
|
|
328 | (1) |
|
How Much Cash Is in the Offer? |
|
|
328 | (1) |
|
What Are the Conditions of Escrow? |
|
|
328 | (1) |
|
Is It a Stock Deal or an Asset Deal? |
|
|
328 | (1) |
|
How Is Working Capital Settled Post-Closing? |
|
|
329 | (1) |
|
|
|
|
|
|
329 | (1) |
|
Who Pays Off Long-Term Debt, and What Happens to the Line of Credit? |
|
|
330 | (1) |
|
What Are the Tax Implications of the Seller's Accounts Receivable? |
|
|
330 | (1) |
|
Is the Seller Signing a Noncompete Agreement with the Buyer? |
|
|
330 | (1) |
|
Chapter 19 Ten Reasons Acquisitions Fail |
|
|
331 | (4) |
|
|
|
331 | (1) |
|
|
|
332 | (1) |
|
|
|
332 | (1) |
|
|
|
332 | (1) |
|
|
|
333 | (1) |
|
|
|
333 | (1) |
|
Reporting and Bureaucracy |
|
|
334 | (1) |
|
|
|
334 | (1) |
|
Responsibility with No Authority |
|
|
334 | (1) |
|
|
|
334 | (1) |
|
Chapter 20 Ten Lurking Problems for Sellers |
|
|
335 | (4) |
|
Quality of Earnings and Inventory |
|
|
335 | (1) |
|
|
|
336 | (1) |
|
|
|
336 | (1) |
|
|
|
336 | (1) |
|
|
|
337 | (1) |
|
|
|
337 | (1) |
|
|
|
337 | (1) |
|
|
|
338 | (1) |
|
|
|
338 | (1) |
|
|
|
338 | (1) |
| Index |
|
339 | |
