Sell-side M&A Process

Apologies if these questions are rudimentary, but I'm an IB hopeful trying to get some visibility on the M&A process.

Say your MD pitches to a software company and your group wins the mandate as a sell-side advisor. At this point, I'm assuming there is a due diligence stage where management coordinates with the advisor and marketing materials/offering memorandums are written in preparation for contacting buyers.

However, how exactly do you come up with the buyers list and write the CIM? What about creating the management presentation and updating the buyer log? Is the buyer log updated by the analyst only as the MD starts making buyer calls? How much coordination is there between the management team and the analyst/junior person preparing the materials? How involved is the analyst in the due diligence process?

Do sell-side engagements often fall through and never price/never reach the LOI stage? What obstacles prevent the deal from closing? How long does the deal take to close?

Thanks.

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Comments (27)

Apr 27, 2012 - 10:29am
Whiskey5:
Sell-side advisory shops do not do due diligence. That's for the buy-side advisor to do.

I almost feel like you are asking these questions to bull shit your resume.

Huh?

The sell-side advisor is typically responsible for managing the due diligence process. That includes coordinating with management to organize and populate the dataroom, managing buyer access, handling buyer requests, etc.

Apr 27, 2012 - 12:14pm
jd-to-ib:
Whiskey5:
Sell-side advisory shops do not do due diligence. That's for the buy-side advisor to do.

I almost feel like you are asking these questions to bull shit your resume.

Huh?

The sell-side advisor is typically responsible for managing the due diligence process. That includes coordinating with management to organize and populate the dataroom, managing buyer access, handling buyer requests, etc.

I agree with Whiskey 5. Yes you do manage the DD process when the buy side folk are doing their DD, but as a sell-side advisor you might only do "light" DD while you value the company to see what the price target should be. You might also tell management to hire lawyers and accountants to produce vendor DD reports - depends on how cheap the company is.

Apr 26, 2012 - 11:23pm

buyer list - your md will come up with it. they should have a lot contacts in sponsors and strategics

cim - you go visit the client and ask for the materials you need. sometimes bigger companies have a lot info. smaller companies will take more time. you craft a skeleton first then you go back and forth with the management

mgmt presentation - again, this is basically copy and paste from the cim

buyer log - you update it when your md forward you the email from buyers...

yes, analyst only start updating the log once you can some news

i had a lot but most of the time it's just vp with the management or the associate

you are invovled 100%, people start asking you shit every time they need something.

sellside usually gets done, unless you are selling a shitty company or the company is asking for unrealistic price (but you would never get selected since you cannot really bs your price goal and you wouldnt want to take on a bad assignment anyways...waste of time)

a lot obstacles - usually the faster the process the better because you post more numbers...which is always bad than good. macro condition matters a lot as well. i am sure a lot sellside fell through with the eu crisis that happened last year

usually a deal is 6month. it can take up to 1 year

Apr 27, 2012 - 9:49am
Ricqles:
buyer list - your md will come up with it. they should have a lot contacts in sponsors and strategics

cim - you go visit the client and ask for the materials you need. sometimes bigger companies have a lot info. smaller companies will take more time. you craft a skeleton first then you go back and forth with the management

mgmt presentation - again, this is basically copy and paste from the cim

buyer log - you update it when your md forward you the email from buyers...

yes, analyst only start updating the log once you can some news

i had a lot but most of the time it's just vp with the management or the associate

you are invovled 100%, people start asking you shit every time they need something.

sellside usually gets done, unless you are selling a shitty company or the company is asking for unrealistic price (but you would never get selected since you cannot really bs your price goal and you wouldnt want to take on a bad assignment anyways...waste of time)

a lot obstacles - usually the faster the process the better because you post more numbers...which is always bad than good. macro condition matters a lot as well. i am sure a lot sellside fell through with the eu crisis that happened last year

usually a deal is 6month. it can take up to 1 year

Thanks so much, Ricqles. Appreciate it.

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May 7, 2012 - 5:06pm

As a sell-side IB advisor, you'll never produce the DD reports yourself but on all the the deals i've been involved we've had companies like McKinsey and Bain produce what's called VDD (vendor due diligence). Of course, then you have also have the buyside guys, PE houses in particular who will hire consultants to produce 100 pages DD reports for them (besides the VDD reports provided by the company). I really don't understand why people prefer sellsides. Yeah, they close but at core, most of the work you'll be doing is either marketing (going through 200 turns of the CIM, management pres) or admin (adding shit to the data room...etc). Buysides are less painful. You do more modelling, you do more valuation, none of that marketing crap and in general takes less time. Remember, 60-70% of your work in a sell-side (...to this add IPOs as well) is creating marketing materials, none of the fancy shit u dreamin about.

Best Response
May 7, 2012 - 5:07pm

How Does the NDA Process Work in M&A Transactions? (Originally Posted: 02/08/2016)

Hey Folks,

I speak with a lot of bankers who often express how much of a pain in the ass the NDA process is during M&A transactions. I have a very limited idea of how plays out in reality and have a tough time relating. I'm hoping someone may be able to give me a complete walk through of the process.

I'm generally curious about everything, but specifically the following questions:

  1. Who is responsible for the creation/distribution/collection of NDA's
  2. How many iterations are generally done? and who has the most influence(i'm guessing lawyers here)
  3. Do different buyers get different NDA's/ do different seniority levels get different NDA's?
  4. How is this process tracked?
  5. In case of a breach of NDA terms how are these conflicts resolved? is this common?
  6. Is this process truly a pain in the ass? or have I just been catching people on bad days.

Banana for anyone willing to take the time to shed some light.

  • 2
May 7, 2012 - 5:08pm

Whenever a VP through Partner in my office receives an NDA, it gets forwarded to me or another associate to review and sign because they don't want to deal with it. From my standpoint, I review it to primarily make sure that: 1) there are no excessive non-solicits, non-competes, or other overly-restrictive language and 2) it is not binding for our portfolio companies that aren't receiving access to the confidential info. Some PE firms take NDAs more seriously than others and have their lawyers review NDAs. On the other hand, we've never forwarded an NDA to our lawyers since I started at my firm.

Rarely does anyone take exception to changes I make to an NDA. Any changes I make are usually pretty minimal.

As a data point, the partner in charge of the private equity practice of a very large law firm in one of their biggest offices told me that he's only seen one instance throughout his entire career where there was a lawsuit over an NDA. About all you need to know.

May 7, 2012 - 5:12pm
straight cash homie:

Whenever a VP through Partner in my office receives an NDA, it gets forwarded to me or another associate to review and sign because they don't want to deal with it. From my standpoint, I review it to primarily make sure that: 1) there are no excessive non-solicits, non-competes, or other overly-restrictive language and 2) it is not binding for our portfolio companies that aren't receiving access to the confidential info. Some PE firms take NDAs more seriously than others and have their lawyers review NDAs. On the other hand, we've never forwarded an NDA to our lawyers since I started at my firm.

Rarely does anyone take exception to changes I make to an NDA. Any changes I make are usually pretty minimal.

As a data point, the partner in charge of the private equity practice of a very large law firm in one of their biggest offices told me that he's only seen one instance throughout his entire career where there was a lawsuit over an NDA. About all you need to know.

This. I also tell people who are new to looking at them to make sure there's nothing crazy in them. Things like long and broad restrictions of doing anything in that business for a long time. I've had some come across my desk over the years where they'll contain something like you agree not to do anything in the telecommunications industry for 5 years. That's just not practical and weird shit like that tends to come from either small "investment banks" (I'm in the lower to MM PE so we've done deals with GS on one hand and on the other we've done them with what would best be called a business broker or CPA that has no clue what they're doing) or a business owner who's trying to sell by himself or through his CPA, small-time lawyer, friend, etc and think they're such a unique and beautiful snowflake that a multi-hundred million to multi billion dollar investment firm isn't going to look at deals in technology for half a decade because we want to look at their $50MM bolt-on acquisition. If you're dealing with any IB that knows what they're doing it should be a relatively standard agreement, at least with regard to the terms (may look different but substantively they'll be similar).

And like @straight cash homie" said, NDA's are very rarely controversial. Over nearly 20 years of experience I can't think of one time where an NDA was an issue. OP I wouldn't stress out over them.

May 7, 2012 - 5:09pm

Does each person need to sign an NDA? Or does the firm sign a blanket NDA for their employees? Trying to look at this specifically as a sell side advisor

May 7, 2012 - 5:11pm

I like to think of NDAs in private equity as something you sign that simply says you won't be an asshole (e.g.: don't share confidential information with other people outside your firm, don't try to hire the company's management, don't try to circumvent the process to get around the banker's fee, etc). They are truly a waste of time & energy from a process standpoint.

One interesting thing I've noticed about NDAs is that when key terms are missing or the NDA simply is formatted terribly, you can safely assume the banker will be of lower quality or experience - which can be a great thing when trying to buy a company for under true market value.

May 7, 2012 - 5:14pm

(BB) We have our legal guys who will modify our standard template or if we get one from client, they will make changes. If there are disagreements, lawyers from both sides will tackle it until resolved. Then an analyst tracks down a MD's signature and call it a day. It's pretty painless really (especially with an internal legal team involved).

Array
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May 7, 2012 - 5:19pm

NDAs come from sellers to buyers. In the NDA, the buyer's advisors are generally all bound. The seller's advisors sign direct NDAs with the sellers.

Key things people generally fight about in NDAs

1) Length of the NDA (i.e., 1 - 2 years before the NDA expires)
2) Scope - meaning the parties bound - sometimes for big buyside shops, they don't want some other part of the shop inadvertently being caught up in this
3) Various positive and negative obligations (i.e., if someone does something, they need to know if it knowingly or unknowingly violates, NDA etc)

Some people like to fight for shts and giggles others just sign it carte blanche. In cases where the buyer is a strategic buyer or the sponsor / owner of another company in the same industry, NDAs tend to be more fussy because they also have in it non-solicits, etc

May 7, 2012 - 5:23pm

Economy (industry and overall market)
Real Estate market (in many cases)
Financing sources and structure
Owner timeline (Shareholder Approval, Board of Directors opinion, Single Owner, Partners, etc.)
Length of bidding process (Read: Broad Auction vs Targeted Auction vs Negotiated Sale)
Tax considerations
SEC and other regulators/gov compliance and approval
Due Diligence process
Fairness Opinion

... This list could go on forever.

The majority of deals that get started never close. Think about it like this, 100 people walk on to a car lot on any given weekend. Maybe 7-12 buy cars. That's 7-12% deal execution. Can't say for sure but M&A deals are probably about the same success rate. Lots of shopping. Not much buying.

Last week I heard about a $120MM deal that was 2 years in the making and fell apart the night before the deal because one CEO called the other CEO about some small detail. They got in an argument and called it off. I called BS (sounds like a drama queen story from a MD), but he assured me that he wasted a lot of time just to miss out on the fat bonus that would have come from the fees.

Make opportunities. Not excuses.
May 7, 2012 - 5:24pm

Depends on countless factors. 3-months on the lighting fast end, 6mon-1yr median, 2-5 years for a really long process. Had one a MD who had been trying to push a deal through for the better part of 10 yr's when i was in banking.

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May 7, 2012 - 5:25pm

OP asked about MM deals, so I'll try to speak to that. As the above posters have mentioned, it's very hard to generalize the length of a deal size simply by deal size because there are so many other relevant factors. It's very possible to have a huge, multibillion dollar deal that closes in a matter of days (think BSC) and also have a tiny deal that drags on forever. In general though, and attempting to normalize all variables and make a lot of probably unfair generalizations, smaller deals take less time - there are fewer things to conduct diligence on and a given buyer would be slightly more cautious and diligent when more of his money is at stake, and additionally, there are often fewer regulatory hurdles to clear.

If you're going to a MM bank and worried about getting good deal experience, a more relevant question would probably be about how solid deal flow is at a given firm rather than how long a process takes, although I'm not sure that's what you were trying to get at.

May 7, 2012 - 5:26pm
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