In the competitive landscape of M&A, clients commonly select Objective over other experienced investment bankers because in addition to our industry experience and extensive acquirer relationships, we invest extra senior time applying unique methods in a tailored sale process that are specifically designed to maximize sale price. This article will cover:
- Understanding the Roles: Buy-Side vs. Sell-Side M&A Advisors
- Types of Sell-Side Processes
- Objective’s Key Differentiation Methods
Understanding the Roles: Buy-Side vs Sell-Side M&A Advisors
In the context of mergers and acquisitions (M&A), the advisory roles can be differentiated between sell-side and buy-side advisors, each with distinct responsibilities and expertise. Here’s a breakdown of the differences:
Sell-Side Advisors
- Objective: The primary goal of sell-side advisors is to facilitate the sale of a company on behalf of the seller. They aim to achieve the best possible sale price and favorable deal terms for their client.
- Key Responsibilities:
- Preparing for Sale: They assist in preparing the company for sale, which includes assembling a team of legal and financial professionals, and ensuring that all necessary documentation is in order including financial statements, valuations, and agreements.
- Creating Marketing Materials: They prepare the Confidential Information Memorandum (CIM), which provides potential buyers with an overview of the business, including financial performance, market position, and growth prospects, once the Non-Disclosure Agreements (NDAs) are signed.
- Identifying Buyers: Sell-side advisors leverage their network to identify and target potential buyers, which may include strategic buyers within the industry or private equity firms.
- Coordinating Due Diligence: They manage the due diligence process by providing relevant information to interested buyers and addressing any issues that arise.
- Negotiating Terms: They negotiate the deal terms, including pricing, structure, and any contingencies, helping the seller navigate complex negotiation scenarios.
- Expertise: Sell-side advisors bring valuable experience in M&A transactions, enabling them to advise their clients on deal structuring, strategic decision-making, and risk management.
Buy-Side Advisors
- Objective: Buy-side advisors represent the interests of buyers in acquisition process. Their main goal is to help the buyer identify and acquire companies that align with their strategic objectives.
- Key Responsibilities:
- Identifying Acquisition Targets: They assist in identifying suitable companies for acquisition based on the buyer’s strategic goals, financial capacity, and market conditions.
- Conducting Due Diligence: Buy-side advisors perform thorough due diligence on potential targets to assess their financial health, operational performance, and potential risks.
- Valuation and Financial Modeling: They build financial models to analyze the target company’s worth and ensure that the buyer is making a well-informed investment decision.
- Negotiating Purchase Agreements: Buy-side advisors negotiate the terms of the purchase agreement, ensuring favorable conditions for their client, such as price, payment terms, and any necessary contingencies.
- Post-Merger Integration Planning: They may also assist in planning the integration of the acquired company into the buyer’s existing operations to maximize synergies and achieve strategic goals.
- Expertise: Buy-side advisors often have deep industry knowledge and analytical skills, enabling them to provide insights into market conditions and identify opportunities that align with the buyer’s strategic objectives.
In summary, sell-side specialists, including investment bankers and valuation experts, are dedicated to representing the seller’s interests with the ultimate goal of achieving a successful sale. Their expertise in the Sell-Side M&A process is vital in maximizing the value of the transaction while navigating its complexities. In contrast, buy-side advisors focus on aiding buyers in identifying and securing suitable acquisition targets.
Types of Sell-Side Processes
The sell-side M&A process involves several strategies that can be tailored to fit the specific needs of the seller and the dynamics of the market. Below are the four most common sell-side processes:
1. Broad Auction
Description: The broad auction process involves inviting a large number of potential buyers to participate in a competitive bidding process. This approach aims to generate maximum interest and drive up the price by creating competition among bidders.
Best For: This strategy, while effective for middle-market businesses with broad appeal to both strategic buyers and financial sponsors, can be time-consuming and carries a higher risk of private information leaks during due diligence.
2. Limited Auction
Description: A limited auction involves selecting a smaller group of potential buyers—typically between 10 to 50 private equity firms and strategic buyers —who are deemed to be most likely to make competitive offers. This process balances the need for competition with the desire for confidentiality.
Best For: This strategy is ideal for business owners of companies seeking a focused audience while still allowing for some competitive tension.
3. Targeted Auction
Description: In a targeted auction, the seller approaches a select group of 2 to 5 specific potential buyers who are considered the best fit for the business. This process is highly focused and often emphasizes relationships and strategic alignment.
Best For: This approach is best for middle-market companies that prioritize confidentiality and have specific strategic buyers or private equity firms already courting them.
4. Exclusive Negotiation
Description: Exclusive negotiation involves negotiating solely with one potential buyer for a specified period. This process allows for deeper engagement and can expedite the transaction process.
Best For: This approach is recommended for companies already in advanced discussions with an unsolicited buyer, seeking minimal business disruption, confidentiality, and a swift deal closure.
Objective’s Key Differentiation Methods
Among the strategies that set us apart, we employ two distinctive methods that significantly enhance our clients’ chances for achieving super-premium outcomes. Many advisors hesitate to adopt such methods because they demand more senior-level engagement, which may reduce profitability. In contrast, our philosophy centers on prioritizing client outcomes, recognizing that superior results ultimately yield greater rewards for all stakeholders.
Deep Projection Models
We develop deep financial projection models highlighting our client’s compelling unit economics of each sales channel and creating historical data-justified projections designed to provide acquirers with a significantly increased confidence in the company’s ability to achieve/exceed the projected growth plan. When acquirers are more confident in their ability to achieve the proposed growth plan, they are positioned to be more confident to make premium offers that don’t hedge for fears of potential risk.
Post-Acquisition Economics
For strategic acquirers, we use a unique post-acquisition economics method to help the strategic acquirers confidently understand the full value they are going to achieve from the acquisition. We collaborate with the highest-fit strategic acquirers to characterize, quantify, and validate each of the synergies the acquirer will achieve through the acquisition. The acquirers often have already identified the potential synergies at a high level, however by investing extra time to quantify and validate each synergy we are providing the acquirers with deeper insights into how much they are going to make in the next 2-3 years and creating a strong confidence in their ability to achieve these synergies.
For example, in addition to a company’s $6.2M of EBITDA (not even considering the company’s organic growth), a strategic acquirer may recognize and validate they can sell the company’s products through the acquirer’s existing retail distribution channels resulting in an additional $5M of TTM EBITDA within 2 years. If so, the acquirer is gaining $11.2M of EBITDA from the acquisition of the company. If the acquirer is valued at 20x EBITDA, the acquirer’s shareholders are gaining a highly probable $224M of shareholder value. Framing sale price with these deeper insights can position acquirers to logically justify paying a super-premium sale price (ex. $124M = 20x $6.2M) because the purchase price is still a great value for shareholders.
Conclusion: Sell-Side M&A Through Differentiated Strategies
Choosing the right sell-side advisor can make a significant difference in your M&A journey. By investing more senior time and resources into these methodologies, we position our clients to stand out in the marketplace, significantly increasing the likelihood of attracting competitive offers and driving up sale prices. Understanding and implementing these competitive advantages are critical elements of our approach and reflect our commitment to achieving the best possible outcomes for those we represent. Let us help you navigate this pivotal moment with strategies that truly set you apart in the competitive M&A landscape.
Disclosure
This news release is for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Principals of Objective Capital are Registered Representatives of BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities.
