Deal Formation
About the play
This play considers how the deal team should approach the sale of the target itself, the sale process, and how best to structure the deal that best delivers on the deal objectives.
Preparation
People
Executive sponsor, deal manager and team. If external advisors have been appointed then they may run the session, or by the inhouse corporate development manager.
Difficulty
Hard. It’s quite possible the process may need to change during the sale.
Materials
Meeting Agenda, Whiteboard, Strategy documents
Time
This play can be run as a quick one hour session. More likely, it may need to be run a few times, and with different people, before getting CEO and board approval.
Running the Play:
Decide if the Transaction is an Asset Deal or a Share Deal
The seller needs to decide if the deal is to be an asset deal or a share deal. In an asset deal, the seller retains possession of the legal entity and sells certain assets and liabilities connected with the business. In a share deal, the seller sells the shares of the company. The company continues to exist and maintains all of its assets, liabilities, and contractual relationships
An asset deal can be the best option depending on what is being sold. For example, specific financial or legal obligations may be better retained by the seller if it enhances divestiture value. Alternatively, the complicated nature of the assets themselves necessitates an asset sale. For the buyer, an asset sale may be more attractive as it acquires only specified liabilities and may be able to avoid assuming unwanted or unknown responsibilities.
Discuss the pros and cons with attendees and make the decision.
Decide the Type of Sale Process
The seller also needs to decide whether the business should be negotiated exclusively with one particular party or whether it would be auctioned off with interested parties invited to participate.
While an auction can help elevate the purchase price through competitive pressure, it can also have downsides such as higher transaction costs, more significant sales effort, and longer and more complex transaction timelines.
The exclusive, tailor-made sales process with just one party may in many cases run faster and more flexibly, and it may be easier to keep the contemplated sale as confidential in a one-on-one sale than in a limited auction process. However, the biggest downside is the potential of achieving a sale premium.
This table summarizes the situation and the pros and cons for each type of sale:
An exclusive sale process with just one party has fewer steps and can run much faster if pressure by the seller is maintained. An auction process, by comparison, has several more steps, has much greater complexity, therefore requiring more management oversight.
Use this play to make the decision.
Structure of the Deal Process
Typical steps of both sales processes can be briefly summarized as follows:
As shown above, an exclusive sale process is more straightforward and requires less management effort and oversight. From a management stage-gating perspective, the project management process should follow these stages.
If an auction sale process is to be followed, then more effort and management support will be required in:
- Managing the bidding process
- Populating the VDR and managing responses
- Coordinating site visits, presentations and negotiations
- Carving out the business, so it’s a more sellable asset
Make sure you come out of this play with a clear process. This will help structure the work ahead, key decision events and the parts team members will need to play.
