M&A Process: A Buy-side Perspective

There are several routes you can take to sell your company. No matter which way you decide to go, the buyer involved in the process will have a slightly different perspective from yours. On this edition of “Deal Talk,” you will learn the difference between M&A firms and investment banks and, specifically, how some buy-side consultants work with their clients to assist in the early stages of the M&A process. Is your company being targeted for an acquisition? What are potential buyers thinking about your business? How will a price be determined for your business? What are some of the potential hurdles you might encounter? For answers, listen to Jeff Allen's conversation with Nonye Ukawuba, CPA and M&A advisor at Riveron Consulting in Chicago.

Questions Answered For You

  • How does an M & A firm differ from working with an investment bank?
  • Have sellers today become more savvy?  Are they now more informed even before they approached you?
  • Do the sellers who conduct a sell-side due diligence have an advantage over those who do not do so?
  • What is the typical scenario during the negotiation phase?  What might the buyer request from the seller?
  • Should I, as the seller of a company, even consider a non-binding letter of intent from someone who is interested in purchasing my business?

You don't know what you don't know until you actually go through the process.

- Nonye Ukawuba

Key Takeaways

  • Buyers are definitely more prepared than some sellers are, particularly first-time sellers.  There is, however, a growing popularity around sell-side due diligence.
  • Doing a sell-side due diligence allows you, as a business seller, to be prepared for any surprises. If any financial or operational issue comes up, you could start strategizing to address the issue before going to the market.
  • Investment banks don’t want to be in a situation in which they have to go down the transaction process and modify the purchase price just because the buyer who had done appropriate due diligence had uncovered something about the business. You can stay ahead of that, as a seller, by performing or engaging a service provider to perform sell- side due diligence.
  • The asking price shall be based on both the historical performance and the forecasted performance of the business. A buyer who considers entertaining a transaction with a seller would, at the minimum, ask for the financial statements and would want to know the person managing the business.
  • If your goal is to entertain as many potential buyers as possible, then it will probably be in your best interest not to have a binding letter of intent, which has exclusivity clause. On the other hand, the binding letter of intent will help you narrow down the potential party that you ultimately want to entertain.  You will typically won't do that until you are either comfortable that that potential buyer is a good fit for your company, and/ or they're willing to pay the asking price if not more.

Read Full Interview

Jeff: Understanding the early stages of a deal from the perspective of the consultant to the acquiring company. If you want to gain a little wisdom into some of the M&A process from the buyer's point of view you've come to the right place.
 
From our studio in Southern California, with guest experts from across the country and around the world this is Deal Talk, brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.

 
Jeff: Hello, and welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on Deal Talk it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
 
Here to help us understand some of what takes place in the early stages of the M&A process from the buy side is Ms. Nonye Ukawuba, M&A adviser at Riveron Consulting in Chicago. Nonye, welcome to “Deal Talk.” It's nice to have you.
 
Nonye: Thanks for having me, Jeff.

The last thing you want is to uncover an issue after you've already gone to market.

Jeff: You have a lot of skin in the M&A game and I'd like it very much if we could start the conversation by talking a little bit, kind of about what kind of experience you do have because your resume is pretty impressive. You were formally at PricewaterhouseCoopers, is that correct?
 
Nonye: That is correct. I was there for nearly a decade and their M&A practice, what we call transaction services. And I also spent two years in the London office.
 
 
Jeff: Okay. And so travelling overseas, you had a chance to really gain a very interesting perspective having been there and seeing more of this cross-border process as far as M&A goes, which really gives you an advantage in many respects I might think in your business, and that has served you probably pretty well coming back of course the United States and working in Chicago.
 
Nonye: That is correct. There are multiple clients that I serve that have considered cross-border transactions and look for professionals that do have that international experience.
 
 
Jeff: And I should say that at least according to what your LinkedIn profile tells us, and we understand that things could've changed since the information was last published there were changed, she has performed transaction related services on over 130 merger and acquisition transactions ranging in value from five million dollars to over ten billion dollars.
 
Nonye, it's really great to have you here and I appreciate once again for taking the time out of your schedule at Riveron Consulting for joining us.
 
I would like to know how an M&A firm differs from working with an investment bank, Nonye, if you could explain the differences.
 
Nonye: Yeah, not a problem. Riveron, in particular, we serve in a variety of roles. And as you highlighted before my focus really is on transactions, whether it's on the buy side or the sell side. In addition to performing buy-side or sell-side due diligence, our firm also assists clients with the integration process. And also help clients professionalize their finance and accounting function, or improve the reporting process particularly if there are different stakeholders, say when the acquisition takes place that was privately held and now it's primarily owned by a private equity firm, or they've acquired that they didn't have before. We serve in a variety of roles, but my primary role here at Riveron is primarily focused on the sell-side and buy-side due diligence.
 
What makes our firm different from an investment bank? I'd like to use that analogy of buying a house. When someone is either buying or selling a house, there's a real estate agent involved. And that real estate agent's role is to basically put the house on the market and find buyers. The investment bank in this particular example will be the equivalent of the real estate agent. And once they find the buyer, the buyer will likely hire a home inspector to basically check out the house, see if there are any issues with the house. And by the time they're done with the inspection, they deliver reports that summarize all their findings.
 
Now, there may be things in the reports that would cost the buyer money and the buyer would use that as a negotiation tool, but may not necessarily be a deal breaker. My role is equivalent to the home inspector in terms of the buy side. One the sell side, what we'll do is perform the due diligence, help the seller prepare for any potential issues that may cause a fire to basically negotiate the purchase price. So that is our role and that's how we differ from an investment bank.
 
 
Jeff: Would you categorize yourself as perhaps an M&A intermediary?
 
Nonye: Not necessarily because we don't typically connect buyers with sellers, but to the extent that we are where we deal. And we have a lot of clients that are looking for proprietary deals and don't necessarily want to go through the bidding process or go through intermediaries. So we come across opportunities where the seller is comfortable with us spreading the word. Our clients are very much open to it.

I'd like to use that analogy of buying a house. When someone is either buying or selling a house, there's a real estate agent involved. And that real estate agent's role is to basically put the house on the market and find buyers.

Jeff: You touched on an answer or a portion of an answer to part of my next question. By the time a buyer reaches out to you then, usually speaking, they've already identified their target company, is that correct or will you, on occasion, actually kind of help them find somebody who can find the company of interest that they're looking for?
 
Nonye: That's correct. They typically have already identified the company that they would like to target. We will come into play in terms of connecting buyers with sellers if we were working a particular sell side transaction, and we knew of clients where that particular company fits their investment strategy. Then we, again, confidentially is huge to the extent that our client who was selling is open to the introduction. That's when will make that connection.
 
 
Jeff: Okay, very good. Now, if you contact me, I'm the selling company there, okay, and you contact me with a potential buyer, or maybe this is somebody else in your firm Nonye, and I'm interested in talking more about this and kind of pushing the ball along. What typically happens next after I get that call?
 
Nonye: After the seller contacts me?
 
 
Jeff: Let's kind of, just a hypothetical, you get a call from a buyer and you know that my business is for sale. I already know that you guys typically don't taking connected to, not typically but oftentimes if that may come up special circumstances and I'm interested. What typically happens next? What continues on from that point?
 
Nonye: From that point if a buyer contacts me and I'm aware of the company that's on the market that will fit this particular buyer's investment strategy?
 
 
Jeff: Yes.
 
Nonye: I would contact the sellers and basically make them aware of a potential buyer who is looking to invest or acquire a company such as the seller. And basically take it for their guidance take it from there. So ask for their permission to make the introduction if they're comfortable with me making the introduction. So all of that will be driven by authorization of the seller.

My role is equivalent to the home inspector in terms of the buy side. One the sell side, what we'll do is perform the due diligence, help the seller prepare for any potential issues that may cause a fire to basically negotiate the purchase price. That is our role and that's how we differ from an investment bank.

Jeff: Okay, all of it driven by the authorization of the seller. Let me ask you Nonye, your experience having worked of course overseas. You worked in London for a couple of years and of course PricewaterhouseCoopers, now with Riveron Consulting and you've been there for several years now.
 
What have you noticed with respect to the buyers today in the marketplace, are they becoming a lot more savvy before they even talk to you folks, and have they become more savvy in recent years? Do you get the sense that they seem to be armed with a little bit more information, or has it always kind of been that way with respect to what the buyer knows that maybe the sellers don't even really know.
 
Nonye: I don't see much of a change in terms of underlying knowledge that the buyers have when they're walking into a transaction. What I am seeing is more sellers trying to prepare for either that level of sophistication or the fact that buyers are definitely more prepared in the process than some sellers are, particularly first-time sellers.
 
I am seeing a growing popularity around sell-side due diligence. I will say it wasn't as popular particularly in the U.S., not necessarily so much in Europe. In Europe, they do more sell-side due diligence or what you would call vendor due diligence. But it has more so to do with some of the regulatory restrictions that we face here in the US.
 
What I am finding is that although we're not doing vendor due diligence which is the form of sell-side due diligence we are doing more and more sell-side due diligence, which effectively is the reverse of buy side. But in this particular case, the seller is aware of any surprises that a buyer would typically uncover during their due diligence. The whole buyers are going to engage a buy-side due diligence provider.
 
 
Jeff: Okay. Do you feel that then sell-side due diligence gives one company, the company that chooses to perform that due diligence on its own, an advantage over a seller who does not engage in that due diligence or who has to take a lot of time and talking with a bunch of people, attorneys, accountants, and so forth about whether or not it's necessary.  In other words, does one company have a leg up over the other if everything else was being equal?
 
Nonye: Certainly, they do because you don't know what you don't know until you actually go through the process. And not only that but you're finding that more investment banks are almost... I wouldn't say they're making it a requirement but they're highly recommending it, simply because it makes their jobs easier too.
 
The last thing they want to do is go down the transaction process and have to modify the purchase price because something that was uncovered by the buyer as a result of the buyer doing their due diligence. You can stay ahead of that as a seller by performing or engaging a service provider to perform sell-side due diligence. That way you're prepared for any surprises and if something does come up whether there's a financial issue or simply operational issues you're ahead of it and you can start strategizing in terms of how you're going to address it before you go to the market. The last thing you want is to uncover an issue after you've already gone to market.

What we can do in terms of helping confirm that price or make sure that the price isn't altered is before you go to market we can understand the asking price that you have in mind but come in and do the work that the buy-side due diligence providers would do just to say, or at least inform the seller, ‘These are some of the issues that we've uncovered that could potentially impact your asking price.

Jeff: We're talking about the types of issues or the types of concerns that maybe a buyer may have, or at least trying to get in their head and kind of gained their perspective, knowledge of their perspective of an M&A transaction in the early stages and we're doing that with today's guest, Nonye Ukawuba. She is M&A adviser with Riveron Consulting in beautiful Chicago, Illinois. And we're going to continue our conversation with her, my name is Jeff Allen, when “Deal Talk” returns after this.
 
If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to jeff@morganandwestfield.com, that's jeff@morganandwestfield.com.
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.
If you have any questions about any of the topics you've heard us discuss on “Deal Talk,” all you have to do is ask us. It's just that simple, because this show is committed to you and we're committed to bringing you answers and finding solutions. Simply call our Ask Deal Talk info line at 888-693-7834 extension 350. It's open 24/7. Follow the instructions to leave your question and we'll reach out to one of our guest experts so we can feature your question and their response on a future edition of “Deal Talk.”
 
Ask Deal Talk at 888-693-7834 extension 350. And yeah, what we do is really depending on the question that you ask, we'll go through and we'll talk to one of our experts we've had on the program in the past who've actually dealt with those specific questions in the past. We've got a huge database here that we can kind of pull from and we'll find the right person to address your particular concern, or question, or interest.

 
Jeff: We're talking about a buyer's perspective and some of the things they're thinking about, some of the concerns, and just kind of really getting their point of view in the early stages of the M&A transactional process. My name is Jeff Allen.
 
Our guest today, Nonye Ukawuba of Riveron Consulting in Chicago has joined us and really, really pleased to have her on board for this show. This is her first appearance on the program. Nonye, I've got a price in mind for my business. What kind of company like yours, like Riveron Consulting or another company perhaps, provides the same kind of services. What can it do to confirm or alter the price that I'm talking about for my company that I'd like to get?
 
Nonye: The asking price would inherently consider the historical performance and the forecasted performance of the business. So a potential buyer, they're comfortable with the initial asking price before doing their own due diligence then they would agree to at least entertain the potential transaction, but there would be caveats, and those caveats would include them performing their due diligence.
 
What we can do in terms of helping confirm that price or make sure that the price isn't altered is before you go to market we can understand the asking price that you have in mind but come in and do the work that the buy-side due diligence providers would do just to say, or at least inform the seller, "These are some of the issues that we've uncovered that could potentially impact your asking price. That's one scenario.
 
Another scenario would be we actually uncover some items that would actually benefit the valuation. But because you didn't uncover those items, more likely than not the buyer is not going to volunteer that information so you could potentially be leaving money on the table.
 
 
Jeff: That begs the question... you give really great example or illustration how you're kind of the property inspector in a residential real estate transaction for example. Are you prevented from representing both sides of a transaction?
 
Nonye: Me personally, I am prevented from representing both sides of the transaction. I likely would not go in and do the buy-side due diligence as well as the sell-side due diligence because there would be perception of conflict of interest.

The asking price would inherently consider the historical performance and the forecasted performance of the business.

Jeff: Got it. Understood.
 
Nonye: However, Riveron, as a firm, could represent both sides, but you would effectively have these Chinese walls, or what they would consider Chinese walls where the buy side team cannot speak to the sell-side team.
 
 
Jeff: Otherwise, again, you would have that perception of conflict. And so the company obviously takes the necessary steps to prevent that sort of thing from happening. Let's talk about now the negotiation phase. We're kind of jumping ahead a little bit I suppose here while all deals, they're all a little different. Is there a typical scenario during this particular phase, Nonye? What might the buyer request from me as the seller at this time.
 
Nonye: Right. So as I mentioned when we were discussing, the seller has a price in mind and the buyer may initially agree to entertain the transaction. As part of that consideration, the buyer will likely ask for historical financial statements potentially on a monthly basis, going anywhere from two to five years back.
 
If the company is audited, they'll also ask for audited financial statements, to the extent that the company has a forecast. They would ask for the forecast. So at the minimum that would be some of the information that the buyer would ask for. And they also want to understand the key people who are involved and managing the business as well as sell the margin by products or various service lines.
 
 
Jeff: Letters of intent, when we get that far we know that things are going to start moving ahead likely, or at least we're certainly hoping that they do and that we don't run into any kind of challenges by this time or any time thereabout, and you worked with these quite a bit. Should I, as the seller of a company, should I even consider a non-binding letter of intent from someone who is interested in purchasing my business?
 
Nonye: It all depends on your goal. If your goal is to entertain as many potential buyers as possible, then it will probably in your best interest not to have a binding letter of intent because a binding letter of intent typically has exclusivity clause. What that means is that you can only entertain one potential buyer at a time. In that particular case, a non-binding letter of intent, when you're trying to entertain as many potential buyers as possible has a likelihood of driving up the purchase price.
 
At some point during that negotiation phase, at some point, the potential buyers are going to want exclusivity. The binding letter of intent will help you narrow down the potential party that you ultimately want to entertain, and typically won't do that until you are either comfortable that that potential buyer is a good fit for your company, and or they're willing to pay the asking price if not more.
 
 
Jeff: Okay, so we're at that point and I kind of tipped my hand just a moment ago. I talked about risks or potential challenges to a deal, and you've seen so many of these Nonye over your career. What are some of the most common risks or challenges that could really derail a deal from getting done. And it really doesn't matter what they are, what side, or what industry we're talking about here. But if you could just kind of share a little bit of information, that would be really helpful to us.
 
Nonye: Yeah, I would say the one that's pretty pervasive is the buyer's inability to get comfortable with the valuation, whether it's just because the finance and accounting records aren't in the state where they can actually generate information so that the buyer or the advisors can dig in to the detail and really understand what's driving the performance of the company. Or if the seller can't really say, that they can't really speak to what's driving the performance of the company.
 
Buyers want to understand the data behind growth, and without having that data behind it they can't say whether or not it's because that particular seller's gotten lucky, or there's some fundamental operational strategies or business strategies that the company has pursued that would drive the performance of the business as well as the valuation.
 
 
Jeff: And so obviously they don't want to be tempted by any stats or data that appears flukish, making this company look like a flash in the pan, because then obviously you're talking about a potential liability forever. You buy a company that had one great performing year for whatever reason, maybe it was one great product and then after that everything kind of went in the garbage.
 
Obviously, they're going to continue to do their due diligence and they're going to, I would think try to get as much information in advance by having their team look into the sell side company as much as they possibly can through the due diligence process. And hopefully that uncovers all the information that they're going to need in order to move forward. But you did talk about the fact that it's very pervasive and so being something that's very common indeed, which makes it interesting topic for discussion as we move along.
 
Nonye, this has been a great chat and a great first visit with you, and I really do appreciate your time. We have come to the end of this particular program but I would like to have our listeners understand that you are available to them. If they have any particular questions for you, and in particular if they are really looking to perhaps sell their companies down the line, if you're not able to work with them directly you can certainly answer their questions and pass them along to someone at Riveron who could probably help them could you? How can they reach you?
 
Nonye: They can reach me at nonye.ukawuba@riveronconsulting.com. That is nonye.ukawuba@riveronconsulting.com.

A non-binding letter of intent, when you're trying to entertain as many potential buyers as possible, has a likelihood of driving up the purchase price.

Jeff: Nonye, it's been a great visit. I appreciate your time. Thank you so much for joining us today on “Deal Talk.”
 
Nonye: Thanks again for having me, Jeff.
 
 
Jeff: That's Nonye Ukawuba, CPA and M&A adviser and at Riveron Consulting in Chicago. Tell a friend about “Deal Talk,” won't you? In addition to morganandwestfield.com where you can find transcripts of this and other shows, you can find us also on iTunes, Stitcher, and Libsyn.
 
Deal Talk has been brought to you Morgan & Westfield, nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen. Thanks again for listening.
 
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