Description
Redcliffe’s interactive M&A negotiation course is aimed at those with a working knowledge of the M&A process. It focuses on negotiating the key commercial aspects of the transaction which impacts value for both buyer and seller and on creating the right framework and strategy for enhancing value for the seller or retaining value for the buyer.
The simplistic view of M&A is that it is a bilateral process between buyers and sellers. Experienced practitioners understand it is an organic process, which involves multilateral negotiations between buyers/sellers on the one hand, and their respective advisers on the other hand. Additionally, there are critical negotiating issues that arise, in parallel, between the parties, their own advisors and between the advisors themselves (e.g. accountants debating the completion accounts, lawyers debating warranties in the SPA).
To complicate matters, there are significant differences in approach between different types of sellers and buyers. For example, corporates have a different agenda to PE firms whilst owner/managers, who invariably lack experience in M&A, often represent the biggest challenge. Last, the seller’s management can also have a malign influence on the sale process which requires delicate handling.
The programme is divided into two parts. The first part focuses on the soft negotiating issues which are common to smaller deals but less relevant in larger auctions. The second part focuses on the technical or commercial aspects where the real value can be gained or lost. These include the completion mechanisms (completion accounts and locked box), the offer structure (e.g. cash free-debt free and working capital adjustment), structuring the consideration, handling management and value leakage through the warranties, disclosure and indemnities.
Finally, warranty insurance, long seen as an expensive and cosmetic solution, is experiencing rapid acceptance in Europe and, increasingly, has emerged as a powerful negotiating tool. Last, the programme reviews various solutions to closing the “value gap” between the parties and the pros and cons of the various methods of achieving this.
What you will learn
Effective negotiating strategies and tactics –There is no one strategy that works in M&A but rather a range of strategies and tactics that are driven by the respective parties’ objectives. The appropriate strategy or tactic will depend on the importance of the issue being negotiated hence it is important to prioritise the various issues that will arise during the deal and apply the appropriate strategy to that issue
The politics of the deal (Managing the various players) – a simplistic view of M&A is that it’s a case of buyer vs seller but the reality is more complex as the parties need to manage a wide range of actors (buyer, seller, lawyers, accountants and corporate finance). The programme provides guidance on these issues and strategies on managing the main parties and also their advisors. Unsophisticated sellers (& their advisors) pose particular challenges as do unreasonable players & the programme provides guidance on how to navigate these challenges
Managing ‘management’ conflicts – managers with no equity stake can sabotage or highjack the sale process. The programme identifies these risks and provides strategies on risk mitigation
Differentiating the buyer’s offer – in a competitive situation, buyers need to find an edge to get to pole position and close the deal. The programme discusses various strategies on how to achieve this
The Equity Bridge (reconciling Enterprise to Equity Value) – the ‘Cash free / Debt free‘ concept is simple concept but the devil is in the detail. Not all cash is created equal and there are different categories of cash which impact the Equity bridge in different ways e.g. trapped cash, restricted cash whilst operating cash is highly relevant in specific sectors. ‘Debt’ poses even more challenges & whilst some items are obviously debt, there are numerous other debt-like items which are contentious (operating leases, deferred comp & bonuses & litigation) whilst some items could be treated as either debt or working capital (e.g. deferred revenue). The programme provides guidance on how to negotiate these issues
The Working Capital delta – negotiating the working capital ‘Peg/Target’ is another aspect where the parties can surrender (or gain) material value. Buyers face an additional challenge post-closing of they have failed to acquire the target with an appropriate level of working capital. The programme reviews some of the common pitfalls in using ‘average’ or ‘normalised’ working capital and how to mitigate typical risks
Completion Accounts or Locked Box – each mechanism has its pros and cons. The programme covers the key areas of negotiation and the aspects which can trip up buyers & sellers
Value erosion mitigation – sellers have a variety of ways of limiting value erosion under warranty (& indemnity) claims post-closing. The programme reviews the various methods and highlights the key traps for unwary buyers
Warranty insurance – this has developed as an increasingly viable method of mitigating seller’s liability in many jurisdictions and is gaining traction globally. The programme reviews when, where and how to use this to best effect
Bridging the Value Gap - often the key issue in getting the deal through. The programme reviews the various methods of closing this gap, the pros and cons of each of the primary ways of achieving this together with some additional methods of reconciling the parties
Devising effective, bulletproof Earn-outs – often one of the most challenging aspects to negotiate but also a source of dispute post-closing. The programme provides guidance on the key issues, from the seller and buyer’s perspective, and how to mitigate the risks of dispute post-closing
Using ESG as a negotiating tool? – ESG has become increasingly important to Private Equity & Listed companies since their investors. For unlisted corporates, ESG principles now assume greater impact on their financing options since banks are increasingly reluctant (or even unable in some jurisdictions) to lend to firms unless they can demonstrate compliance with ESG and a strategy to reduce emissions
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