M&A and Investment Banking - riassunti completi

VDD.

2. Due Diligence Phase: perform due diligence; analyse financial and

operating performance; prepare indicative valuation; prepare info

memo*.

3. Final Preparation Phase: Develop marketing strategy; prepare

prospective buyers list; prepare process documents; finalise IM and

prepare tease; prepare data room and VDD.

Phase I:

You have to prepare for the next step, which is the first round, at the end of

which you want the buy side to come to you with a preliminary offer, based on

the info they have. Thus, you have to prepare the third document: information

memorandum, where you put a lot of info of the company, forecasts, KPIs. With

the info memorandum you have a process letter. With these four documents

the buyer should be in the position to make an offer.

1. Round One – Non-binding Indicative offers: Contact prospective

buyers and sign Confidentiality Agreements (CA) distribute IM and phase

I letter; prepare management presentation and data room visit; prepare

legal agreements; finalise data room and VDD; evaluate offers and select

round II participants.

Phase II:

1. Round Two – Binding Final Offers: distribute phase II process letter

and external due diligence reports; management presentations; data

room due diligence + Q&A; pre-negotiation of contracts; evaluate binding

offers and select final candidates.

2. Execution Phase: Finalise negotiations; sign definitive \agreements;

announce transaction; regulatory approvals and closing.

*Info memo: it describes the context where the company is active, market

dynamic, operating performance, strategy, personal, sale strategy, financial

performance. You provide historical figures, so you don’t provide business plan,

which is going to be provided in the management presentation. When you

distribute info memo you also give the phase I process letter. You ask to

prepare a non-binding offer. The company is reporting the financial results

according to the IFRS; but some transactions may be affected by non-recurring

costs/revenues. These transactions have to be normalized.

The board of director may require a strategic evaluation and fairness opinion of

the company; in any case the valuation exercise may be different if the

company is listed or if it is required by the board.

Lawyers have an important role: they define the process from a legal

perspective, draft legal agreements, negotiations. Financial advisors may assist

you to set the price.

The company and the investment bank have different roles in the internal

preparation phase and in the external execution phase.

Company in Internal Preparation Phase: they have to agree on the

approach and views on key transaction issues; they have to prepare and review

the business plan; brainstorm on key selling points of the transactions; work

with bankers to prepare teaser, IM and management presentations; assist

lawyers and accountants in data room preparation; provide necessary info in a

timely manner; manage internal confidentiality.

Investment Bank in Internal Preparation Phase: design sale process; due

diligence and evaluation of financial and operating performance; prepare an

indicative valuation; prepare process letters, IM and marketing strategy; assist

management in preparation of extended teaser and management presentation;

coordinate work streams.

Company in External Execution Phase: deliver management presentations

and meetings; rehearsal for Q&A sessions, prepare answers; facilitate buyers’

due diligence visits; participate in key phases of the execution (negotiation,

drafting of legal documents, announcements).

Investment Bank in External Execution Phase: deliver initial marketing

and facilitate CAs negotiations; coordinate buyers’ due diligence schedule and

be main contact between them and seller; evaluate indicative and binding

offer; keep management informed and act as a buffer.

Lawyers in Internal Preparation External Execution Phase: take care of

company due diligence, detailed legal review of key documents; prepare legal

due diligence report; analysis of appropriate transaction structures; draft legal

agreements; negotiate CAs with prospective buyers; hold due diligence

meetings with potential buyers; review and draft key transaction process

documents and data room rules; participate in contact negotiations and

discussions with regulators.

Accountants in Internal Preparation External Execution Phase: review

of historical and forecast information; assist management in preparation of

financial info for data room; prepare draft VDD report; analyse tax implication

and tax regulation changes; participate in selected Q&A; assist management

and lawyers in preparation of schedules to the SPA; prepare pre and post-

closing financial statement

M&A 7 - Buy Side

If you are a buy side and you lose the bid with a more competitive bidder you

gain nothing. If there’s a clear seller it’s better to stay on the buy side, but

usually is safer to stay on the sell side: if you don’t sell you still have the asset.

1. Preparation (week 1-6):

Sell-side: define key objectives; kick off meeting; identify potential investors;

internal due diligence; draft info memo; draft process letter; prepare data

room.

Buy-side: seek intelligence; review competitive landscape; consider pre-

emptive bid; consider potential partnership; select advisors.

2. First Round (week 7-10):

Sell-side: approach potential investors; receipt of expressions of interest;

distribute info memo and phase I process letter; Q&A; receipt of indicative

offers; shortlisting.

Buy-side: review teaser and send preliminary expression of interest; review

IM and send question lists; identify due diligence items; assess preliminary

valuation range; financing requirements; non-binding offer; send indicative

offer.

3. Due diligence (week 11-15)

Sell-side: distribute legal documents; data room visits; management

presentations; Q&A process; site visits; receive final offers.

Buy-side: review VDD documents; data room visits; Q&A process; site visits;

confirm/refine preliminary valuation range; financing requirements; final

binding offer; board approval; send final offer.

4. Negotiation (week 16-?)

Sell-Side: analyse final bids; tactics; contract negotiations; signing and

announcement; prepare relevant filings.

Buy-Side: tactics; contract negotiations; signing and announcement; prepare

relevant filings.

5. Closing: conditions to closing and closing (for both sides).

You have to prepare for the next step, which is the first round, at the end of

which you want the buy side to come to you with a preliminary offer, based on

the info they have. Thus, you have to prepare the third document: information

memorandum, where you put a lot of info of the company, forecasts, KPIs. With

the info memorandum you have a process letter. With these four documents

the buyer should be in the position to make an offer.

The buyer has now to do a data room (originally it was a physical room now it’s

virtual), with all the details and information, about litigations, potential

litigations employees, operations, contracts.

This exhaust the preparatory phase.

Usually you have to narrow the buyers’ list: 3/4. If you are buyer you can either

come up with a number or with a range.

Due diligence: you get all info and you start negotiating a contract; there are a

lot of tactics, what is the best price to put in the offer.

You might receive two similar and competitive offers: ask for the final offer,

extract something more. Either you ask for a higher price or you try to

eliminate some conditions in the contract. If they drop a condition you might go

for it even for a lower price. Or they might offer the break-up fee.

What kind of advisories does the buy-side need?

1. Investment bankers: valuation analysis assisting buyers, coordination and

point of contact, conduct other financial analysis, assist in due diligence

such as evaluation, provide intelligence and understanding what others are

doing monitoring competitors’ landscape, evaluate transaction structure and

financing, develop negotiation strategy and be the interface for

negotiations, work with lawyers to review contractual documentation.

2. Lawyers: negotiate NDA, review legal DD reports, analysis of transaction

structure, participate in target’s due diligence and Q&A sessions, conduct

anti-trust analysis, participate in contract negotiations and in Q&A sessions,

draft management term sheet, review financing agreements or negotiate

them, participate in discussion with regulators and prepare anti-trust filings

for post-signing.

3. Accountants: review VDD reports and conduct accounting, financial and tax

DD; participate in DD and selected Q&A; analyse tax implications; assess

net debt and debt-like adjustments to enterprise value; assist in mark-up of

schedules of SPA; prepare pre and post-closing financial statements.

4. Other advisors:

Market consultants: carry out market research and sign off business

 plan.

insurance advisors: review target’s insurance arrangements.

 pension advisors: valuation of pension liabilities

 environmental consultants: participate in site visits; conduct EHS

 (Environmental, Health and Safety) due diligence; identify potential

environmental/hidden liabilities. (If you operate in an energetic field).

Due diligence: Objective is to deliver fully diligence bid, except for review of

black-box information to be made available post-final bids. The areas of DD are:

finance, accounting and tax; legal; commercial; technology and operations;

insurance; HR; pension; EHS. The responsible are the buyer, accountants,

lawyers, consultants and investment bank.

Financing/Hedging: develop financial structure, obtain binding financing

commitments to be submitted along with final bids, and define hedging

strategy. The responsible are buyer and investment bank.

Structuring: analysis and transaction structure to optimise tax position and

determine the optimal acquiring entity. The responsible are the buyer,

accountants, lawyers and investment bank.

Valuation: the objectives are valuation, net debt and debt-like adjustments;

key work-streams are standalone operating model, synergy analysis, merger

analysis, analysis of net debt and debt-like items. The responsible are the

buyer, investment bank and accountants.

Interlopers: the objective is to seek intelligence and review competitive

landscape, and to develop interloper analysis. Responsible are investment bank

and buyer.

Management/Employees: the objective is to identify key employees to

retain, develop strategy to approach employees and retention objectives,

develop proposal and discuss it with management, management term sheet

agreed and execute at signing. Responsible are buyer and lawyers.

Anti-trust: The objective is to develop anti-trust analysis and determine

requirements for anti-trust filings and expected timeline; draft an