So if we like [Target Corp.], we just sign an LOI and move ahead in the process, right?
A corporate (to-be) client’s CFO said this to me when we were discussing the process to help them acquire a business in their industry.
I had to pause and think about the answer.
He was right (and he was just quickly recapping the process from his perspective).
My answer was Yes.
So Yes – you’d be signing an LOI and moving ahead in the process.
But also,
𝙉𝙤 – 𝙣𝙤𝙩 𝙟𝙪𝙨𝙩 𝙨𝙞𝙜𝙣𝙞𝙣𝙜 𝙖 𝙙𝙤𝙘𝙪𝙢𝙚𝙣𝙩 𝙩𝙤 𝙢𝙤𝙫𝙚 𝙖𝙝𝙚𝙖𝙙.
Here’s some of what you’d have already accomplished by the time you’re ready to sign (and we’ll be right there with you the whole way).
𝟭. 𝗩𝗮𝗹𝗶𝗱𝗮𝘁𝗶𝗻𝗴 𝘆𝗼𝘂𝗿 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗳𝗼𝗰𝘂𝘀:
As the acquirer, you’ve already spent months with your leadership team to plan your growth strategy.
You’ve made a conscious decision to do M&A.
We’ll build and refine the M&A pipeline together.
But by the time you’re ready to put in an LOI, it means we’ve together validated that your strategy and focus areas are dialed in and tight, enough to actually engage with a target.
𝟮. 𝗘𝘀𝘁𝗮𝗯𝗹𝗶𝘀𝗵𝗶𝗻𝗴 𝗿𝗮𝗽𝗽𝗼𝗿𝘁 / 𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀𝗵𝗶𝗽 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝘁𝗮𝗿𝗴𝗲𝘁 𝘁𝗲𝗮𝗺:
Extending and signing an LOI is an act of commitment from both sides.
You’d have built a good relationship with the leadership at the target, and had a fairly good sense of the leadership and potential fit within your business.
𝟯. 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲𝗱 𝗮 𝘄𝗶𝗻-𝘄𝗶𝗻 𝗱𝗲𝗮𝗹:
Unless an M&A target is desperate, the LOI has to be a good mutual fit in multiple different areas – price, structure, terms, process, diligence areas, exclusivity, timeline, and representations.
If the entire deal was like building a house, this would be laying the foundation, pouring the concrete, and setting up the frame.
𝟰. 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝗳𝗼𝗰𝘂𝘀 𝗮𝗿𝗲𝗮𝘀:
We’d have learned enough about the target to know what risk areas to dig deeper into when going into the next round of diligence.
𝟱. 𝗦𝘆𝗻𝗲𝗿𝗴𝗶𝗲𝘀:
You’d have a strong sense of where incremental growth will come from in the business, once you acquire them. You’d also have a good sense of where you can cut costs and increase profitability.
𝟲. 𝗕𝘂𝗶𝗹𝘁 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗼𝗻𝘀𝗲𝗻𝘀𝘂𝘀:
We’d run this deal up your chain of command (in this case the full leadership team and the business line that would absorb the target).
We’d have built consensus about the path forward. Everyone is committed to doing the deal.
𝟳. 𝗣𝗿𝗲𝘃𝗶𝗲𝘄 𝗶𝗻𝘁𝗼 𝗶𝗻𝘁𝗲𝗴𝗿𝗮𝘁𝗶𝗼𝗻:
We’d have a fairly decent idea of where the business would fit inside your organization and would be integrated on Day 1 vs. Day 2, for example.
So yes – we’d be memorializing the work through the document.
But the work we do together to get there.. the– discussions– planning– risk analysis– trade-offs of opportunity cost– decisions
… that’s where the real value is.