Case Study – Systematic Search for Acquisition Targets
Our client was a foreign industrial holding company wishing to expand his industrial activities in Europe. The client’s problem was how to find good quality dealflow as it is very time consuming work to approach targeted companies, find out if they are for sale, analyse their business and financials as well as to pre-negotiate the terms of the desired transaction.
Privilege Partner’s Corporate Development services provided an attractive alternative solution as we could provide our client with our outsourced services providing access to more dealflow and thus also more options to choose from. Here is exactly what and how we did it:
We first worked with the client to understand his business activities and the objective of his expansion plans in more detail. Afterwards we jointly reviewed and updated his search criteria defining industry of interest, target size (revenues), geographic areas, price range and certain other select criterias of importance to our client. This lead to a new search scope so that we could work efficiently and focus on the most interesting areas of interest. In our case these were mostly Western European Countries such as Germany, Switzerland, Austria, Czech Republic, Benelux, Norway and Sweden. In addition we also prepared a Non Disclosure Agreement (NDA) template which was jointly agreed upon with the client to allow an efficient process in gathering the financials and business data we would need to do a proper evaluation of those businesses.
Privilege Partners assumed then the task to manually research suitable acquisition targets and carefully check if they were in line with the defined search criteria. Our research resulted quickly in more than 100 companies of potential interest (later on even 2000) out of which we filtered the most suitable candidates onto a longlist which was updated and maintained each month. The longlist every month was provided to the client so that he had full transparency over our search and at the end reached more than 450 names on it.
3. Approaching companies
We then started to approach company by company mostly through online marketing techniques, writing short pitch emails and asking them to tell us if they would be interested to sell their company. We showed them the search criteria of our client as well. Using our email techniques we got 40% – 60% response rates.
The companies which indicated interest we called in person and shortly verified that they indeed are up for sale and checked certain information we needed to get clarity on whether to proceed or not. Where we found that the company is a good fit, we directly sent them the NDA so that they would be protected sharing their financial and other business information with us and our client. For other companies, where we doubted that this would fit well with the client’s business, we checked back with our client and let him decide whether we should proceed or not.
5. Exchanging information
Upon signing of the NDA we then provided the target company with an initial information request list. The request list focused mostly on the company’s financials and the business activity with the intention to be able very quickly to gather all facts and obtain a preliminary view what the value of this business would be and have a solid basis for a go or no go decision.
We used quick indicative valuation techniques at this stage mostly focused on the income and cash flows of the business, which we discussed with our client before and which allowed us to quickly estimate the value of the business. We then also would seek all arguments which might not have been reflected in our valuation technique to estimate how accurate our valution is and find all important elements which are determining the value of the target companies’ business.
7. Clarify Price Expectations
The last part of the analysis was to find out the selling price expectations of the seller as obviously this can be a deal killer. So after we analysed the financials and did our valuation work, we confronted the target companies with our findings and held an initial discussion about their price expectations.
8. Prepare Factbooks
The information – financial, business and price – we gathered in a factbook and concluded with a recommendation to our client whether to proceed – and if yes on which basis – or not. This factbook we discussed in detail with our client so that he could get clarity quickly whether it would make sense to proceed or not. If afterwards he confirmed interest we would get back to the company and arrange a first direct call and prepare a site visit.
9. Site Visits
From time to time we organized a visit tour across Europe where we visited company by company to personally meet with the sellers and management teams and get to know their business in more detail. The objective of such visit was to get a feel for the business, validate and verify our assumptions and collect further information needed in order to be able to prepare an indicative offer.
10. Negotiating Letter of Intent (LOI)
We assisted our client in negotiating the key terms with the target companies, checking back and forth and test the flexibility of both parties in all aspects in order to make a deal work. After we got confirmation from both sides that the terms can be accepted, we then helped our client to put these terms in the form of a Letter of Intent and provide such letter as discussion basis to the owners of the select company. Afterwards we arranged the conference calls to discuss and negotiate such letters in all details dill we either had a transaction lined up or we abandoned the project.
The work resulted in significant benefits for our client as he saved time and costs sourcing all these target companies and having somebody who drives the project forward which at the end resulted with more choice and giving the client better options to choose from.
- More than 2,000 companies considered
- More than 450 companies on the longlist
- More than 150 companies shortlisted and in detail disccussions held
- More than 10 site visits conducted
- Several letters of intent issued and negotiated