Many companies only deal with acquisitions when an opportunity is brought to them through their network or contacts. If the opportunity sounds attractive, a lot of time, resources, and money are often invested in execution, even though the chances of success are initially not foreseeable. If negotiations fail, the acquisition topic is off the table again. Or, red flags identified during due diligence are overlooked because so much has already been invested and alternatives are lacking.
To avoid such pitfalls, one can rely on a structured acquisition process.
What is a structured acquisition process?
In a structured acquisition process, the goal is to build a well-filled pipeline of attractive opportunities, track them, and ultimately complete a transaction with at least one of them.
Similar to a structured sales process, the aim is to create competition among targets and place the client in a strong and comfortable negotiation position. In addition, having multiple opportunities generates transaction security, thereby increasing the likelihood of achieving strategic goals.
Process of a structured acquisition
A structured acquisition process can be divided into four phases.
1. Screening Phase
The first phase of the acquisition process can be broken down into the following steps:
a. M&A strategy: The entrepreneur and the M&A team derive an M&A strategy from the company’s vision and overall strategy and translate this into concrete search criteria (e.g., revenue size, location, service portfolio, end markets).
b. Research: The M&A team creates a list of potential targets that match the criteria (the longlist) and aligns this with the entrepreneur. At this stage, except in rare cases, there is no knowledge about the targets’ willingness to sell.
c. Initial discussions: The M&A team contacts the shareholders of the targets and conducts initial conversations to gain further insights and explore willingness to sell.
d. Decision basis: The findings from the initial discussions are continuously communicated to the client, aligned, and supplemented with recommendations for next steps.
The screening phase is pursued intensively at the beginning to build up the pipeline. After around 2–3 months, one is usually at a point where it is possible to move into the next phase with several targets. Nevertheless, a good M&A team distinguishes itself by never really closing the screening phase, keeping in touch with targets, and always keeping eyes and ears open for new opportunities.
2. Transaction Phase “light”
With attractive and willing targets, confidentiality agreements are signed, information is exchanged, and management meetings are arranged. These are a crucial part of the phase, as the level of harmony at the principal level sets the tone for the further course. It is not uncommon for one of the parties to drop out of a transaction after a management meeting. In parallel, the M&A team prepares an initial indicative valuation of the targets, which serves as the basis for an indicative offer.
3. Transaction Phase “Due Diligence”
a. Indicative offer: This phase begins with the submission of an indicative offer. This offer includes not only an indicative valuation of the target but also other framework conditions under which the client would proceed towards a successful transaction (e.g., timeline, due diligence requirements, exclusivity, etc.). The valuation and other conditions are negotiated with the target and often result in a term sheet (similar to a preliminary agreement) signed by both parties.
b. Due diligence: In due diligence, a detailed review of the company is carried out, often with additional specialized advisors (e.g., lawyers), and the findings are incorporated into a draft purchase agreement.
c. Investment case + transaction financing: Unlike most M&A advisors, i-capital offers its clients the option of a detailed feasibility analysis together with its sister company i-unit, as well as support in arranging transaction financing.
4. Implementation Phase
In the final phase, the purchase agreement is negotiated, signed, and the transaction successfully completed.
Advantages of working with i-capital
Experience: The international team at i-capital has a unique track record of successfully executed acquisition processes. The team can look back on nearly 100 successfully completed projects in a wide range of industries.
Depth of advisory: i-capital’s positioning as part of the i-unit group is unique in Germany. In addition to transaction advisory, the following can be offered:
- Feasibility analyses including integrated financial planning of the target, competitive analyses, etc. in cooperation with its own analytics team
- Transaction financing with sister company i-unit
- Post-merger integration with sister company re-unit
- And much more…
If this has sparked your interest, please do not hesitate to contact us! We look forward to getting to know you.n.
Tel. 0531 180 59 300
