This is basically concerned with corporate entities, which are likely to merge with or acquire a business. You can understand it as a list of sellers who are interested in merger or acquisition of their companies. For buy-side advisors, this list gives an idea about whom to approach confidentially to understand the initial interest of potential acquirers.
Who Should Be Included in The Target List?
The answer to this question defines the goal for preparing a target list for an M & A deal. However, it’s obvious that potential acquirers or buy-side companies would be listed in it. If you exactly want to know who to be there in the list, here are some common entities:
- Customers
- Suppliers
- Similar businesses
- Private equity groups
- Your direct competitors
- High net worth individual investors
Best Tip: Before searching and analyzing who to cover in your target list, discover which parties would be benefitted through this deal. You may cover upselling, cross-selling, more revenue or business opportunities, and other aspects.
Source of Target List
Well, there are multiple options for sourcing the list of potential deal-makers. From M&A deal-making networks to applications, software, and websites-you may come across a number of alternatives for it.
- M&A-based Software/Applications
There are certain software or tools, such as Bankers Deals, that can help you connect with the potential deals for merger and acquisition. Such platforms come up with a ton of advanced features, which are associated with the next-level search option. Many of them allows free registration and freemium services, which means that you can access certain features absolutely free of cost for a few days. Later, you have to pay out for the best fit subscription plan. These tools have AI-powered SaaS-based systems, which displays the real time preferences and intended investment options.
The beauty of these tools is that they continue to update you with the most preferred choices through alerts and notifications. Besides, you can access virtual data rooms where deal-based docs or data are stored. This data is accessible to only authorized subscribers or users who belong to it. Also, the dashboard is also there to analyze the deals.
- Online Advertisements
This is the second most popular alternative to create a target list. You can go through various websites, such as Reuters.com, SeekingAlpha.com, Pitchbook.com, CNBC, NYTimes.com, TheMiddleMarket.com, Genengnews.com, and FT.com. In addition, Craigslist is also there to discover such deals in no matter of time. You can discover niche-based line of businesses to target. You may find them as per local areas or geographies.
- M&A Advisors
There are many firms with financial and legal advisors to guide you on building your own list of target deals. They have hands-on experience and expertise, which help you to secure the likelihood of the deal. Such professionals understand business dynamics. They frequently stay in touch with many entities, out of whom a few may be intended to deal with any good buyer.
Mainly, such professionals appear as a true advisor who originate suitable companies, initiate contacts with entrepreneurs, and advise on values and deal structuring. Even, a few ones go along with you to the next-level for negotiation, valuation, due diligence, and further compliance.
Such advisors have the knowledge of the market. With them, a company feels that it knows the industry well. Their assistance can help you see issues beyond transaction multiples, revenue, and income of private companies. And also, they have contacts. With these contacts, a merchant can have a direct opportunity to merge with a larger company.
- Network of Entrepreneurs
There are certain business owners or financial advisors who have a big network of entrepreneurs, bankers, financial advisors, and likewise professionals. This networking provides great insights into prevailing deals. They have the contact list of all who are in the same line of business or supply chain. With it, you can find some contacts to put in your target list.
With these resources, you can build initial contacts.
- Select from Targets
The aforementioned resources will help you build a buy-side target list. Now, you can make a more informed decision. Choose the most attractive deal by taking the industry dynamics into account. It will give you a clue to measure advantages and values. Figure out the answer to which company would be interested in making transactions. Then, finalize the one name.
- Making an offer
Once you’re ok with a name to make M&A agreement, issue a Letter of Intent (LOI). It claims that the deal is initialized in writing. With this happening, the stage becomes all set for structuring it, defining the scope of the due diligence, and other details.
- Due Diligence
This is a very important step. You should avoid the speed. Take your time and hire an experienced advisor to carry out financial due diligence, legal due diligence, operational due diligence, HR due diligence, intellectual property due diligence, etc. Understand how this process is going to contribute to your goals after the transaction.
Perhaps, the deal looks good. But over time, its company culture, attrition, and many other factors can create a risk. So, it’s always good to seriously discover its company culture, strategies, and other aspects.
- Close the Deal
Due diligence can draw a clear picture of the target company, its liabilities, competition, and other aspects. If you haven’t thoroughly studied the drafted blueprint of initial terms and conditions stated in the Letter of Intent, review it at this stage. If it is not good to go, jot down the reasons or objections. Your advisor can interact and convey your concerns or objections.
Then, you can look forward to creating a final agreement for sale. It looks similar to the LOI. The only difference is its legality. It is legally binding paper.
In this paper, the details should be there about how the target company’s share certificates are going to be shared.
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Remember, this stage requires both parties to agree on an attorney. He will appear as an escrow who will help in transferring the money and share certificates to summarize the deal for the target company.
Summary
Building a target list for buy-side M&A requires sources to find the deal. Then, you need to select the target company and initiate the deal. Complete due diligence, and close the deal. The role of resources is important. So, wisely select such resources that can provide valuable deals.
