One of the most beneficial things an owner can do when preparing to sell their business, is take the time to understand what can be involved in an M&A process.
At Clanwilliam Group, we have developed and streamlined a repeatable M&A process that ensures we complete acquisitions as quickly and efficiently as possible. Here, we will share with you a broad overview of what our sale process looks like, giving you a better understanding of what to expect throughout.
Step 1: Letter of Intent
The first step of the process is to draft a letter of intent (LOI). As the name implies, the LOI lays out the intent of both parties: Seller states that they are willing to sell for the proposed terms, and Buyer (Clanwilliam Group) states what they are willing to pay.
The LOI is an important step because it lays out the basics of the final deal: the purchase price and terms, closing date, length of exclusivity, approvals, and more.
An agreed and signed LOI indicates the start of the due diligence process.
Step 2: Due Diligence Begins
Following the receipt of a signed LOI, sellers will receive an initial due diligence information request pack. This will request all the information and supporting documentation we will require to diligence a business. The information requested will include sections on commercial, technology/IP, HR, legal, finance etc. The pack will also contain a guide timeline to completion.
The objective of due diligence is for us to build a better understanding of the business and its investment merits, to identify any risks or potential complications and to facilitate the post-acquisition integration of a sellers’ business into our group.
Step 3: Introductory Call
We like to schedule an introductory call to introduce sellers to the Clanwilliam team members who will lead the process and to answer any questions they may have at this point in the process. At Clanwilliam Group, we pride ourselves on being open, honest and transparent. We find that scheduling regular principles calls throughout the process allows us to answer questions as they arise and helps us to build a strong foundation for our future relationships.
Step 4: Data Room Population by Seller
During this stage, we request sellers to upload any required information to a secure data room. This stage of the process is integral to ensuring overall timelines are met. It is not until population is complete that due diligence can begin in earnest. The key to everything running smoothly here, is preparation by the seller.
This data room remains under the control of the seller. Once provided, the information is reviewed by Clanwilliam Group and our advisors.
Step 5: Sellers Management Presentations to Clanwilliam Group
In our experience, some of the information requested is best presented and discussed in a meeting with the leadership of the business. This provide all parties with an opportunity to gain clarity and context for the information provided. It also helps build our relationship. We typically organise a day or half day of management presentations.
We always encourage sellers to take full advantage of these meetings to ask as many questions as they like about the process pre-and post-acquisition and about Clanwilliam Group. Our advisors may request supplementary information after this stage with another day to walk through financial information separately.
Step 6: Completion of Due Diligence
After these management presentations are held, there is often a need for further analysis in particular areas such as finance and technology, but when completed, the output of due diligence is three reports:
- A report that takes a view of the business in terms of commercials, technology/product, people and operations. This report is prepared by the Clanwilliam Group team.
- A Financial & Tax Due Diligence report prepared by our advisors.
- A Legal Due Diligence report prepared by our advisors.
Step 7: Legal Papering
Once due diligence is completed, legal papering will begin, with key transaction terms being circulated from Clanwilliam Group to the sellers and their appointed legal advisors. This allows for the key points of the legal documentation to be agreed in principle before legal drafting begins. We have found that by circulating and agreeing key terms in advance, the legal papering process runs more smoothly, with less time and money being invested from both sides. Although the LOI provides the basis for the commercial deal framework, new findings from due diligence may lead to renegotiation of certain terms.
Once key transaction terms are agreed, the share purchase agreement (“SPA”) or asset purchase agreement (“APA”) and other ancillary documentation will be drafted. We aim to turn the documents no more than three times to ensure that the process is not drawn-out.
Step 8: Completion
Subject to final approval by our investment committee, the transaction documentation is signed and funds are transferred to the sellers. Signing generally takes place in our legal advisor’s offices on a date and time that is pre-agreed with you.
If you want to learn more about Clanwilliam Group’s unique approach to M&A, you can download our eBook “Our M&A Approach” from the link below or on the home page.