STRUCTURING THE TARGET LIST IN THE M&A PROCESS

The M&A process, as described in e-book Demystifying the M&A Process, consists of several stages, the first, and perhaps the most important, being the definition of Strategic Motivations. It is during this stage that the real driving reasons for the sale of your company or the acquisition of another are defined. Among the motivations for making an acquisition, market expansion, product diversification, access to disruptive technologies and the capture of operational and financial synergies, are usually the main ones. On the selling side, normally, the most common justifications are the need for financial resources to assist in the company's growth, lack of succession, risk diversification on the part of entrepreneurs, and the monetization of shareholder participation. In a process of Sell Side, once the Strategic Motivations of the entrepreneurs, partners of the company that will be sold or invested have been defined, the next step is to define, together with the Advisor, what will be the List of Targets. This experience, at first, may seem abstract and generic, but when describing in a clear and objective way the desired characteristics of potential investors or buyers, the M&A process tends to be faster and more assertive. A great way to start preparing the List of Targets It is promoting a Brainstorm inter Advisors and entrepreneurs, where the segments that have the most synergy with the company will be shortlisted. Once these niches have been defined, it is up to Advisor Research who are the main companies in these sectors, and then find, for each of them, the Strategic Motivators, if any, that may arouse interest in a possible investment or acquisition. Many companies choose to seek only potential investors and buyers who are close, who are already part of the relationship network of Advisor or entrepreneurs, without first understanding whether the companies in question have any Strategic Motivation to move forward with the business that will be presented. The relationship network counts a lot in the M&A process. However, even if they are close, a member of the Board of Directors will not vote in favor of an acquisition just because they are friends with Advisor or entrepreneur; the business has to make sense strategically. For those Targets identified and who are not part of the relationship network of those involved in the M&A process, the path is well-structured market research, searching for target companies in associations and rankings of the sector, as well as in specialized magazines. Another tool that helps you search for Players It's LinkedIn, a social network aimed at the corporate market. In it, it is possible to find much of the basic information for an initial approach, such as the number of employees, the operating market, the main competitors and key employees, in addition to being a possible direct channel with the executives of targets.There is no single way to conduct the M&A process, however regardless of the methodology chosen, it is extremely important for the company to know its Targets and know what to expect from them, so that if this transaction is successful, it does not have future frustrations and misalignments in the conduct of the business. At the end of the process of creating the list of Targets, the company will have a document that will serve as a guide to the approaches, including not only the main data of Targets, as well as the record of all contacts made with it, as shown in the following table:

Although it seems like an obvious suggestion, recently the study Companies Invested by Private Equity Funds in Brazil: Lessons Learned, developed by Endeavor Brasil in partnership with Insper, showed that the practice of profiling Targets desired and getting to know them in depth is not so common in Brazil. According to the study, which interviewed 47 companies invested by funds from Private Equity in the country, approximately 44% of companies did not carry out a structured process as described in this article. As a consequence, approximately 75% of these companies received only one proposal from potential investors. On the other hand, 75% of the companies that had a structured process, including the creation of the List of Targets, obtained more than one proposal.This fact becomes more relevant when it is observed that approximately 40% of the companies interviewed did not seek to understand the strategic motivation of the fund they were trading, even though they carried out a process of structuring the list of Targets well done. As a reflection, those companies that didn't know their Targets after all, they were likely to accept the proposal with the highest value, a fact that occurred with 80% of the interviewees in that position. On the other hand, 77% of the companies that studied their Targets and had defined the desired partner profile, they rejected the highest offer, demonstrating that the investment amount was in the background, while the initial Strategic Motivation of that operation was prioritized. The study carried out by Endeavor Brazil illustrates the importance of drawing up a list of Targets structured and that respects the Strategic Motivation initially defined for M&A, significantly increasing your probability of success. ARTICLE WRITTEN BY MATHEUS RIGUEIRA - ASSOCIATE OF FC PARTNERSGo to our site: http://www.fcpartners.com.br/