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"When you are a public company, sometimes speed is your differentiator." – Kirti Gavri
Auction processes in M&A are very challenging for strategic buyers and corporate development teams need more than a compelling offer to compete in an auction. In this episode of the M&A Science Podcast, Kirti Gavri, Head of Corporate Development for Wizeline, discusses how to run an accelerated deal process.
When you are a public company, sometimes speed is your differentiator.
So, we become a part of these broad processes where, even if you are not the highest bidder, you can get the deal done faster in the desired timeline that works in your favor. So that has been the training background, and overall, it boils down to the standardized processes.
As you know, any M&A deal cycle starts from sourcing to signing and closing. What worked best for getting it done with the desired speed is identifying and understanding the internal navigation or the internal organization well. Understand and define your stakeholders and the processes you would use for each step through that deal cycle.
For example, one most important thing critical in the process is having your initial request list ahead of time because things move fast when approaching due diligence. Once you've identified that you will run the deal process in various tracks, you should have your initial request list from the stakeholders. They should be standardized, rather than starting from scratch in every deal.
The second thing is having your standard templates of LOIs, IOIs, approval matrix, and trackers that you would maintain to have a view of the transaction status at any given point in time.
Also, the boilerplate once you get into the definitive, if you're doing a stock purchase agreement or an asset purchase agreement, would you need a transition services agreement (TSA)? Or, if you are dealing with cross-border transactions, what regulatory approvals would you need? So having a repository of that just helps you a lot.
The next step is identifying the stakeholders in the organization. Identifying the business sponsor and project manager participating in the deal ahead of time significantly helps speed up the M&A process.
Also, have a standard M&A team. I always have one HR person who is my go-to, and then they can assemble and change their team. So there would be one person from risk and compliance and one person from global IT.
This way, when I give them the heads up for a potential deal, they already know what to do and can start assembling their team.
The standard process is once we have an inbound or a proactively sourced deal, you get the NDA, the detailed information memorandum, and the management presentation, and then start preparing the business case.
For the accelerated process, it's best to identify early on if it's a strategic fit. Then, as we go through the process, we do everything in parallel with each other, not sequentially.
For example, as soon as we have management calls and receive the deal materials. I would request all my team members and stakeholders start thinking about the business case.
I'm not waiting until after the management call to start the business case. Initial DD, for example, getting a market landscape and a competitor landscape because most of the time, once you have identified and know the name of the company, pretty much the ecosystem is out there for us to do that research.
So starting that preliminary due diligence and preparing the business case internally in parallel makes a lot of impact on the timeline.
That goes back to my first point of having standard processes. If I were to bucket these standard processes into key deliverables, the number one would be the initial request list.
The second would be business case preparation. That includes the valuation and the financials of fit, strategic rationale, market opportunity, and comparative landscape. There has to be a standard boilerplate template that we primarily use.
You can change it from case to case, but the template is there. Then, the same thing goes as you go to the LOI–that would be the third deliverable. Some potential targets would prefer a term sheet.
Then, as we get shortlisted for the latter stages and due diligence, the standard trackers that you would use as an update to identify if there are any red flags or key issues that you've foreseen in any of the diligence tracks–that's another deliverable, the DD tracker.
Then the diligence reports you will present to your board, your internal management, and the stakeholders.
The final part is the definitives. Again, either you're using your own templates or you are working on the agreements coming from the other side, the key clauses in most of the SPAs are pretty standard. So have a floor and ceiling for those deliverables.
You also have already identified the owners, who are responsible for the strategic rationale, who are responsible for the market overview, and who's responsible for its finance and valuation. So all of those things are identified in advance, and it's like a framework.
By the design of it, I'd say a proactive process definitely has a longer deal cycle. Because you might have identified the opportunity, but the other side may not be on the same page as you are, and it will always take the time to warm up to the idea.
If you've been following M&A for the past few years, the valuations are through the roof, so everybody wants to maximize what they can get for what they've built. They also want to do some market trickery and all of that.
But the preference is always to have a proactive deal. If you're not as acquisitive as some of those companies are, it makes more strategic sense that you go at your own pace and find the value as a win-win for both the parties and not necessarily at any time driven by the sell side process.
Because any sell-side process would have an accelerated timeline, they would have market forces more attached and driving the desired outcome they want to reach.
However, not every surfside represents a process or an auction. I have seen many of them just take a consultative advisory approach where they know they're only going to select parties where it makes strategic sense.
Auction processes do you mean to have an accelerated timeline because they have a very high likelihood of getting the deal done. Also, everything is already prepared with the financials and other information.
Initial diligence begins as soon as we have the detailed information. It is primarily and largely to understand what is the market opportunity for that potential target. Where are they playing? What is their go-to market?
Get the public information readily available out there, and also talk to industry stakeholders, your business stakeholders who are out there in the market, and customers. Of course, all of it happens discreetly, but because we already have the information, that's where the diligence starts.
In terms of HR, finance, legal — all of that still is part of the latter stage because you don't have much information about that. But to reinforce and underscore your strategic rationale and the synergies, it's all just getting the information from your market leaders.
This happens once we have signed the NDA and received the CIM. Before NDA, you don't even know the company's name.
The things that they look for are around the health of the business.
Business overview and the company's evolution from its strategy point of view. Where did they start and where are they now?
But a management call is more centered around the health of the business and less on financials.
The people aspect is one of the biggest things because it is the reason why most M&A transactions fail or succeed. Even early in the process, you can get shortlisted because of the cultural fit. Sellers have a lot of suitors but the biggest differentiator is people.
From a buyer standpoint, what we are looking to see is:
Also, talking to the management and understanding what is important to them regarding expectations from a potential buyer tells a lot.
One of the most important things to ask is:
I used to think these were tough questions, but those are the conversation starters. I have come across companies saying they've not included us in the process because the potential target doesn't believe it's a cultural fit.
And on the other side, if it's also a great cultural fit, we think our team is ready because one gets enough autonomy and is empowered for that geography for a global organization.
Unless we are extremely keen on the area, in that target, or the potential market space, we are always very cognizant if this will be tough. Is this process worth it?
So because we are cognizant, what it helps us do is even in the initial stages of the process, we ask those tough questions to the sell-side banker:
More often than not, in such scenarios, we don't even participate in the process. So it's just being thorough because, to be honest, it takes a village. It's a lot of hard work and bandwidth distraction to get an M&A deal done. So, we just do it upfront.
However, if you've established as an organization, as a corporate management function, that this is what we need, and this is what we are going to do, then paying a premium to get the deal done is the right call.
Corporate development professionals must bring those reality checks to the organization. Educating your management, educating the stakeholders, what it's going to take. If you don't move at the desired speed, you're out of the process.
And it's not only about speed, it's also about the valuation expectation in the scenarios, which have been identified as growth areas or big bets for your company.
But despite all this, we also have to realize that as a seller, there's a clear demarcation why a sponsor deal makes sense versus a strategic deal, and that is where you play.
For example, if a target believes in their product or service offering and has an established definite Proofpoint in the market, everything is well.
They have a great business going, but the only reason is for the next phase, they either need capital or they need go-to-market. So in either of those scenarios, a strategic buyer makes sense because if you become a part of an organization with a global setup and go-to-market channel, that's the access right away, and the time to market is accelerated.
Whereas if there is a seller which has to either go through a transformation, whether it's operational efficiencies or at a price point where they have to go through a roll-in strategy or tuck-ins to become sizable to even justify the value that they are envisioning, then a PE or a sponsored route makes sense.
The competition is not as much as speed or value because once you're in a process where sponsors are a part of it, and there is equal weighing from the seller side, then you can't really beat sponsors, unless a strategic buyer absolutely makes sense.
These days, multiple platforms can help you track the entire deal pipeline. Not just the funnel but also the process. However, in my experience, we've always maintained internal trackers with checks and balances.
One part of the accelerated deal process is also to keep it robust. What I mean by that is to have a regular daily cadence with the stakeholders, not just the business stakeholders but also the diligence work, the legal team, and the finance team.
So, at any given point in time, if there is a red flag, then all of us are aware on the same day it was identified because you have a daily cadence at the end of the day.
Also, use a due diligence tracker. Trackers give team members a view of every work stream and who’s leading. Then, during meetings, teams can go through what key risks are identified, so everyone understands how each risk will impact other work streams.
And If we don't know, we assign a person as an owner right away in that call, saying to the team what could potentially impact the business case and what they should cover. The cadence is all hands on call. Everybody involved in the due diligence is on that call.
Always prioritize integration to ensure deal success. One of the best practices is to have a dedicated integration management office (IMO) that works closely with the corporate development team.
I'm not saying they should be part of Corp Dev necessarily, but even though it's a separate function, they should start and get aligned with Corp Dev or the deal process early on, right at the time of the diligence.
Most of the transactions in M&A fail because of integration. And I'm not talking just about process integration, it could be cultural integration, but it does boil down to integration. The problem is when corp dev hands over the deal to the integration team.
The integration team should be actively involved in the M&A process from the due diligence stage, post-exclusivity. They should understand:
Because Corp Dev will be out of that process when it comes to execution, and then we are onto our next deal, but the business team is tough for the execution, and they have no idea about:
So what we do is we help the integration team to be onboarded in the M&A process, and we help them in their initial planning of day zero, day 30, and day 60.
We explain to them the desired stage of this M&A - where we are today, where we are doing the transaction, what the business wants it to be in three to five years from now.
Then, we educate them about the assumptions of the business to make this happen:
We play the role of facilitators or enablers, so we bring them in with the management and just enable those conversations through the process.
The biggest challenge in an accelerated process is how far removed the integration planning is from reality. It's all based on assumption, and people fail to account for disruption in the business cases and integration.
Everybody comes in highly optimistic to achieve this on Day Zero or Day 30, and the employees still do not have the ID cards three months down the line. So it's that being very optimistic and being in a strategic mode versus operational mode.
Every deal is so different in its own regard. At any given point in time, we should always keep asking the tough questions of why we are doing it. We should always lead with the people aspect because people are the reason why a business is successful or not successful.
Sometimes we can get lost in the numbers, but it should always be what it is that the buyer is looking for in us, in the potential partner. How can we make them successful so that we can realize the value of this transaction? So it's about people, people, people. That's the best tactic.
