Buying another company can be the right decision for you and your agency depending on your unique needs and objectives. To accomplish your goals in a strategic transaction, you may need help understanding the process, structuring the terms, completing due diligence, and ultimately consummating the deal. Here’s how an M&A advisor can help you through all the phases of a buy-side transaction.
Considering making a strategic acquisition? Contact us to find out more information.
Timeline and Role of M&A Firms
Acquiring another company can be a highly involved and time-consuming process. Even if you are working with an M&A firm to assist you, the process may cumulatively take up to a year or longer to complete, depending on how much time you spend in each phase of the process.
Phase 1: Market Research
Usually, the first phase in the acquisition process consists of extensive market research. You also want to be able to provide your M&A advisor with a clear picture of what type of firm you want to buy. Your merger and acquisition consultant will ask you many questions to help you narrow down and refine your understanding of what you are looking for in a buy-side acquisition. The goal here is to narrow down the universe of companies you may potentially be interested into a relatively concise list of firms that have the specific attributes you are looking for in an acquisition target (capabilities & services, number of employees, client base, geography, etc.).
For example, you can narrow down your ideal agency, a digital marketing firm, from a general concept, to telling your advisor that you want a digital marketing firm with roughly 15 people, $2 million of revenue, located in the Pacific Northwest, within driving distance of Seattle, and with complementary services and capabilities. This clearly defined objective will result in a greater chance of success as it helps narrow down the list to agencies that are more relevant to your company. If there are certain seller characteristics that you do not care about, your M&A advisor may use that as an opportunity to expand the market search as well. M&A advisory firms will be thorough in discussing your needs and goals with you, until you are clear on exactly what you want.
If you are working with an M&A advisor, they should be able to do most of the heavy lifting in this phase and provide you with research on several targets that might look like a good fit. It is also important to note that you may also already have a connection with several agencies that you know and have worked with before that could potentially be a good fit for you.
During this phase, your buy-side advisory team will take the following steps:
- Research key geographical areas – take a “deep dive” into the population of agencies that have the desired capabilities and services;
- Gather competitive intelligence on each company – identify products and services, clients, the size of the company, the number of employees, and financial metrics (if available); and
- Make recommendations – by the end of phase one, your M&A advisor will have built a list of prospects for you to consider, done extensive research and talked you through the pro’s and con’s of each potential acquisition opportunity.
Phase 2: Outreach
Phase two begins with outreach to agencies to determine if there is any interest in selling. Your M&A advisor will have introductory discussions with potential sellers and make sure that nondisclosure agreements are signed. The M&A firm will then conduct preliminary financial and business intelligence of each company, reviewing financial statements, shareholder structure, client concentration, and corporate culture. Based on preliminary due diligence, the M&A firm will format summary financials, investment highlights, and a preliminary assessment of each company for review and discussion with you and your senior management team (as appropriate). Based on your discussions, your mergers and acquisitions advisor should be able to put you in a “go, no-go” decision-making position with regard to each firm that might have an interest in pursuing a transaction.
Phase 3: Transaction Execution
During this phase of the buy-side process, your merger and acquisition consultant will be invaluable in several ways.
First, your M&A advisor will structure the potential transaction based on the terms and conditions that are acceptable to you and senior management (if applicable).
Next, they will work in conjunction with your legal firm to draft, negotiate, and ultimately deliver a Letter of Intent (LOI) that is acceptable for execution by senior management. In the event this document is negotiated between the parties, your M&A advisor should be able to give you counsel regarding what would be considered “market” and what changes would be unreasonable for you to agree to.
The M&A firm will also work with your accountants and lawyers to evaluate all the materials that were gathered during the due diligence process. Your M&A advisor will also assist in organizing and distributing any reverse diligence material that they deem acceptable to provide to the target company. For example, the seller may request historical financials and proof that you are able to fund the purchase price consideration with cash on hand, a line of credit with your lender, etc.
Throughout the several months of the transaction execution process, your advisor will manage all of the relevant parties on both sides to ensure that accountants, lawyers, advisors, and other relevant parties continue to move forward toward a timely closing.
Are All Three Phases Always Necessary?
In some cases, you might already know the company you want to buy very well, and wish to complete an acquisition without conducting market research and reaching out to several different agencies.
For example, suppose your company already has an established relationship with another agency, like the hypothetical digital marketing agency mentioned earlier. The idea of you buying them may have come up in a few conversations before both parties decided to seriously consider it. If the digital marketing firm possibly works with similar clients, has some services and capabilities that could add to yours, and is interested in a conversation, it may be in your and their benefit to consider a merger or acquisition. In this case, you may not need an extensive market research or outreach process.
However, it is typically advisable to perform outreach in any transaction that involves multiple sellers. It will allow you to have confidence that you have compared and evaluated all possible sellers that could be a good fit for you, your business, and your team. In any case, an M&A advisor can help you make the right decision throughout each phase.
The Right M&A Advisor Offers Reliable and Expert Guidance
Clare Advisors is a boutique M&A and financial advisory firm that specializes in providing M&A and financial advisory services to marketing, media, digital advertising, and business services companies. The Clare Advisors team is committed to working with agency owners on the buy-side process to help them grow, expand and thrive. Their responsive approach to working with clients can provide answers to your questions and recommendations throughout the entire buy-side acquisition process.
Think you might be interested in an acquisition? Talk to Clare Advisors now.