Components of a sell-side M&A process​

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May 2024

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  A sale process lasts 5-7 months typically. This can vary. I've done a deal in 3 months, and some stretch all the way up to 1 year, and some die. Ideally none, but it does happen for a variety of reasons. For example, leverage markets freeze up, there’s a macro slowdown, the business’ financial performance declines significantly in the middle of a process, or various issues get brought to light during post-LOI diligence (i.e., unpaid sales tax liabilities, legal, or environmental issues).
 

Components of a Typical Sale Process:
 

Step 1: Pitch (2-4 weeks, depending on the deal). Prepare pitch materials, review initial info, one or two follow up calls with the owner, and prepare the pitch deck. We typically complete a full “pitch” for around ~70% of the engagements we work on, with the remainder being engagements where we are the only bank they talk to. This is often the case with repeat clients or industries we have a lot of experience in.

When you start a new engagement, the first few weeks will look very different depending on if you've done a prior transaction in the same industry or not. If you have, the pitch process is a lot quicker because you can utilize a lot of prior work, research, and institutional knowledge to produce something pretty quick (a week or two). If it’s a relatively new industry that we don’t have a lot of experience in, there is a lot more upfront work involved in learning about key drivers of value, the competitive landscape, active buyers in the space, etc. versus if we have done a ton of deals in the industry already.

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• Key Deliverables: Pitch
   

Step 2: Process Preparation (4-8 weeks, depending on the deal). After a pitch is won, we start preparing to go to market. This involves leveraging the materials created for the pitch, sending a diligence request list to the management team, and putting together a deck for an on-site diligence meeting at the Company. There is lots of labor involved in this portion of the process and is probably where you’ll spend a good amount of your time.
 

• Key Deliverables: Diligence Request List, On-Site Due Diligence Meeting Materials, Buyer List, Teaser, CIM

 

Step 3: Buyer Solicitation and Management Meetings (6-12 weeks, depending on the deal). After we have completed the CIM, we will send out a brief teaser that describes the opportunity at a high level and generate interest from buyers contacted. Groups interested in receiving the CIM will then negotiate and sign an NDA. Buyers typically have three, maybe four weeks at the most to review the CIM and ask any preliminary follow up questions they may have.

Indication of Interest:

Then we set an Indication of Interest (“IOI”) date for buyers to submit an IOI, which is a 2–5-page document that sets a non-binding price range. From there we’ll selectively choose from firms that submitted IOI's on who we think should meet with the management team. This is based on a number of factors – price offered, firm reputation, how much diligence they have already completed, a qualitative judgement from diligence calls to gauge interest, funding sources (ideally, they don’t have to raise additional capital to fund the deal). All else being equal, a traditional PE shop with a committed fund and established lending relationships will have a major advantage over an independent sponsor, group of co-investors, etc.
 

Management Meetings:
Management meetings are important as it’s the first time a potential buyer gets to interact directly with the management team. Up until now all buyer contact has been with the investment bankers, so there will typically be one to three days of meeting preparation with the management team to go through a dry run of the presentation and talk through any questions they may have about the process. The actual meetings with buyers are usually held in-person (although I've done a few over Zoom which is less than ideal for many reasons) either at the facility or at a third-party location like a lawyer’s office or hotel conference room.
 

Dataroom:
Throughout this whole time, the bankers are managing the interaction with buyers, quarterbacking the client, and preparing a dataroom that will have basically any document of importance that a potential buyer would want to see. A dataroom is just a fancy word for a shared DropBox-like cloud platform that has enhanced security and monitoring software embedded. A dataroom will typically include all financial information (audits, trial balances, sales database, bank statements, fixed asset listing, etc.), HR documents (employment contracts, retirement, and health plan information), insurance documentation, intellectual property information like trademarks or patents, environmental permits, legal documents (customer and supplier contracts, organizational documents, stock certificates, corporate records, etc.), tax information, real estate (leases or any recent building appraisals). Depending on the client (PE or founder-owned) this is another area where there could be a lot of banker labor involved if the business has never been sold before.

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• Key Deliverables: Dataroom Request List, IOI Summary, Buyer Diligence Question List for Management Meeting prep, Buyer Tracker, Management Presentation

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Step 4: Diligence and LOI's (4-12 weeks, depending on the deal). Typically, buyers are granted access to the dataroom either right after their meeting or after Letter of Intents ("LOIs") have been submitted. It really depends on the process, but after meetings buyers will have ~3 weeks to do further diligence before submitting an LOI, which is a non-binding document that basically states, "my offer for the Company is $x amount and here are the terms of my offer and any additional diligence that needs to be done to complete the transaction". Ideally you receive at least 3-5 LOIs to ensure there's a healthy amount of competitive tension. Then the banker (in concert with the management team or PE owner) will pick the most compelling offer, negotiate with the buyer on price / any other key terms, before granting exclusivity to one party for 30 to 90 days of confirmatory due diligence (depending on how hot of a process it is). All else being equal, the more LOIs and competition there is for an asset, the more negotiating leverage you have to push for a higher price, a shorter diligence period, etc.

Post-LOI Diligence typically involves the buyer engaging multiple third-party service providers to help assist them in evaluating the different risks of investing in the business. Depending on the deal (some require more, some less) but for the most part a buyer will hire separate diligence providers for: accounting and tax matters (i.e., an accounting firm that performs a buy-side QoE), legal, environmental, IT, insurance and benefits, and HR.

After these diligence streams are complete and all of the documentation has been provided for any of the buyer's follow up questions, final legal documents (purchase agreement, rep and warranty policy, and post-close employment contracts) are negotiated. The last step is finalizing the funds flow (fancy term for bank wiring instructions) to close the transaction. Then you have the most anti-climactic conference call you've ever been on where a bunch of lawyers get on the phone and say yes to twenty arbitrary legalese filled statements. The funds are wired, you throw a big celebratory closing dinner, and do it all over again.