M&A BUY SIDE ROLE

HANDBOOK
M&A PROCESS SELL SIDE ROLE

• Advertising and selling securities.

• Increasing assets under management.
Initial business Considering • Generating liquidity for listed securities.
• Performing financial modeling and 1 Strategic planning 6 11
valuation. valuation financing sources • Assisting clients with getting in and
out of positions.
• Conducting internal research on
Preliminary target 12 • Providing equity research analysis of
potential investment and financing 2 7 Legal aspects
opportunities. search Letter of intent indexed companies.
• Performing financial modeling and
• Identifying investors and recruiting
valuation.
capital to manage.
Due diligence 13 Purchase price
3 Evaluation of public 8 • Advising corporate clients on major
• Earning the most favorable risk- allocation transactions, mergers and acquisitions.
adjusted return on capital. available data
• Creating and building relationships
• Determining whether to buy, sell, or
4 9 Final valuation of 14 with new businesses and corporations.
hold investments.
target Integration
• Overseeing clients' money.
Initial Contact • Facilitating increasing debt and/or
equity.
5 10 Negotiation 15 Goodwill impairment
NDA agreement
FINANCIAL ANALYSIS OF
TARGET
VALUATION
DEAL FINANCING LETTER OF INTENT
• Define scope for review e.g. 3-5 years
• Financial statements INCOME APPOROACH
• Standalone positions in financials Cash Transactions: • Introduction • Termination Provisions
• Profitability, liquidity, activity and structure Description: The acquiring company uses its available cash • Description of the
indicators
• Binding or Non-
reserves to fund the acquisition.
EBITDA normalization transaction Binding Nature MARKET APPOROACH
• Advantages: Immediate and straightforward; no additional
• Revenue and expenses impact on EBITDA debt or dilution of shares. • Payment Terms • Exclusivity
• Reviewing business units performance Stock Transactions: • Confidentiality • Timeline and Next
• Analysis NWC and debt Description: The acquiring company offers its own stock as • Representations and Steps COST APPOROACH
payment to the shareholders of the target company. Warranties • Dispute Resolution
Advantages: Preserves cash; can be attractive if the acquirer's
FINANCIAL PROJECTION stock is highly valued.
Debt Financing: VALUATION DRIVERS
OF TARGET Description: The acquiring company borrows money (loans or
bonds) to finance the acquisition.
DEAL STRUCTURING
Advantages: Tax benefits (interest is tax-deductible); doesn't VALUATION METHODS
1. Sales and other revenue projections dilute shareholder equity.
2. Earnings projections Mezzanine Financing: ACQUIRER SELLER
3. Operating expense projections Description: A hybrid of debt and equity financing, often used
4. Net working capital projections (receivables, • Management and • Equity stakes to retain • Discounted cash flow method
in leveraged buyouts.
inventory, and liabilities to suppliers) Advantages: Less dilutive than equity; cheaper than high- control • Control and decision • Precedent transaction methods
5. Long-term and fixed asset and depreciation interest debt. • Voting rights making • Net book value method
projections Leveraged Buyouts (LBOs): • Protection against • Earn-outs • Venture capital method
6. Financial liability and interest expense Description: Involves borrowing significant amounts of money • Valuation by multiple
projections dilution • Warranties and
to meet the cost of acquisition. • Berkus method
7. Other balance sheet item projections Advantages: Allows acquisitions without committing a lot of • Regulatory approvals indemnities
8. EBITDA projections capital. • Integration plan • Liability to retain key • Comparable companies method
9. Cash flow projections • Consolidation effects personnel

DUE DILIGENCE

FINANCIAL DUE TAX DUE COMMERTIAL DUE CULTURAL DUE LEGAL DUE TECH DUE
DILIGENCE DILIGENCE DILIGENCE DILIGENCE DILIGENCE DILIGENCE

Understanding the tax Assessment of current

Market analysis
Business and processes function Understand your own Preparation and planning technology stack
Product and service analysis
understanding Review external advisor company culture Document collection and Software quality and code review
Customer and sales analysis
Finance function and team outputs Research the target review Cybersecurity and data privacy
Marketing and brand
assessment Review current and past company's culture Legal analysis compliance
analysis
Overall financial statements disputes with tax Compare and contrast both Analysis of compliance with Intellectual property evaluation
Operational analysis
reviewing administration cultures local laws and regulations It infrastructure and operations
Financial performance
Reviewing specific balance Check did the taxpayer Identify potential cultural Contract analysis: with Product and technology
analysis
sheet positions submit all tax returns and conflicts suppliers, customers, roadmap review
Regulatory and legal
Analyzing financial pay taxes timely Develop a cultural employees Team and talent evaluation
compliance
performance Standardized list of integration plan Risk assessment Compliance with industry
Management and
Assessing financial controls questions to the client Implement and monitor the Report and standards and regulations:
organizational assessment
Examining contracts and Prepare sampling for reviews integration recommendations Financial assessment of
Risk assessment
agreements CIT testing Evaluate post-merger Negotiation and finalization technology investments
Synergy and integration plan
Assessing contingencies VAT testing integration success Post-acquisition integration Vendor and third-party
PIT and other taxes testing assessment

POST M&A POST M&A INTEGRATION COVENANTS

ACCOUNTING
STRATEGIC & CULTURAL OPERATIONAL FINANCIAL • Non-Compete Covenant: prohibits the target company or its
• Financial consolidation key employees from engaging in activities that compete
and integrations Align Vision and Goals; Cultural Business Processes; Supply Chain
with the acquiring company's business for a specified period
• Financial reporting Assessment and Alignment; and Logistics; Product and Service
Financial Systems and Controls; of time and within a defined geographical area.
Cost Synergies; Revenue Synergies • Non-Solicitation Covenant: restricts the target company
requirements Communication. Integration
• Purchase price allocation from soliciting or hiring employees or customers of the
COMMUNICATION & acquiring company for a certain period after the merger or
• Identification and HR TECHNOLOGY & IT acquisition.
BRANDING
valuation of intangible • Confidentiality Covenant: ensures that both parties maintain
asset HR Policies and Benefits; Talent the confidentiality of sensitive information shared during the
• FMV of tangible assets Management and Retention; IT Systems Integration; Data Unified Branding and Marketing; due diligence process and subsequent integration
Integration and Security Stakeholder Engagement
• Goodwill calculation and Training and Development • Financial Covenant: designed to maintain certain financial
recognition performance levels after the merger or acquisition.

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