Potential Buyers' Sourcing and Management Process
About the play
Once the seller has decided to divest the business unit, and a formal divestiture exercise has been launched, the seller needs to identify who the potential buyers might be. While this exercise is commonly performed by the investment banking or corporate advisory firm engaged in helping sell the business, it can also be done in-house.
The seller wants to identify a buyer who can offer a competitive price for the to-be-divested business unit, has a good track record with acquisitions, and is a strategic fit for the divested business. The seller should prepare for due diligence requests from the potential buyer.
This play helps define what the process will look like, who needs to be involved and the respective tasks.
Preparation
People
Deal team lead and people selected who can help make decisions.
Difficulty
Medium
Materials
Meeting Agenda, Whiteboard, Strategy Documents
Time
Spend one day or more to prepare materials for a two hour play. Note: this play may need to be run more than once, each with different participants.
Running the Play:
Identify Buyers
At a minimum, the seller should consider a potential divestiture buyer’s capabilities in the following areas:
- Financial resources
- Employee base and experience, and expertise
- Facilities and other tangible assets
- Intellectual property rights and other intangible assets
- Existing capabilities complementary to the divestiture business
- Relevant regulatory approvals
Create a Preliminary List
An initial list of buyers is typically identified and researched by investment bank advisors. Once an initial list is presented, the Deal Team (including advisors) may also have suggestions for potential buyers that can be added to the list. A full preliminary list is then created and will require a more thorough review.
Once the preliminary list of potential buyers is created, the Deal Team may want to validate that the list considers a broad range of potential buyers to maximize value. Criteria for consideration may include, but are not limited to, cultural fit, geographical alignment, industry alignment, financial position, and operational metrics.
As part of reviewing the initial list of potential buyers, it is important to consider any companies that should be “black-listed” or removed.
Approach Potential Buyers
An initial list of buyers is typically identified and researched by investment bank advisors. Once an initial list is presented, the Deal Team (including advisors) may also have suggestions for potential buyers that can be added to the list. A full preliminary list is then created and will require a more thorough review.
Once the preliminary list of potential buyers is created, the Deal Team may want to validate that the list considers a broad range of potential buyers to maximize value. Criteria for consideration may include, but are not limited to, cultural fit, geographical alignment, industry alignment, financial position, and operational metrics.
As part of reviewing the initial list of potential buyers, it is important to consider any companies that should be “black-listed” or removed.
Issue a Confidential Information Memorandum (CIM)
Once the NDA has been signed and is in effect, a secure communication must be sent with the CIM along with instructions for submitting indicative offers must be sent to the potential buyers. For tracking purposes and protection of the deal, each CIM and instructions packet needs to be password protected, watermarked, and individually numbered.
Any requests for additional information that may require sensitive data be included in the response need to be carefully reviewed on a case-by-case basis.
Best practice allows for a deadline for questions and data requests to ensure that the potential buyers have ample time to decide before submitting their indicative offer.
Obtain Indicative Offers
Be clear about the indicative offer deadline and reinforce this through multiple reminders. Ensure that the investment banking advisors are leveraging a “white glove” approach with each potential buyer. If additional time or data points are required to strengthen a potential buyer’s response or desire to respond, then consider making the exception.
Create a Short List
Once the indicative offers have been collected from potential buyers, the investment banking advisors should review and identify any areas requiring additional clarification.
Assuming the indicative offer is clear, the investment banking advisors may need to investigate how the potential buyer proposes to finance the transaction as proposed, follow-up with provided references, and assess the buyer’s reputation for closing transactions. Through a single source of truth document, the investment banking advisors will summarise all of the submitted offers, provide their analysis/recommendation, and list outstanding questions.
The deal team should review this document and discuss either via a conference call, in-person or via email (the least desirable of the three options). Critical areas for review are price or price range including non-cash consideration, contemplated structure, financing plans and access to financing, offer contingencies, due diligence process and available due diligence resources, and deal-specific considerations
Prepare for Management Presentations and Initial Site Visits
Site visit periods should be identified upfront within the overarching sales timeline. All site visits should take the form of one-on-one presentations between Divested Entity management and a single potential buyer team.
Management presentations are often held in a discrete, off-site location to keep employees unaware of the sale while site visits are, by necessity, held at the seller’s facility with reasoning undisclosed to employees.
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