Step by Step Guide to Buying A Company

In this article, we will talk about how the deal process will look like in a buyside project.

You have identified an ideal target now. Have you already been talking to them? Or are you still just thinking of making your first move?

Regardless of your contact history with the company, you will need to take the initiative to start a more serious deal discussion.

So what should you do first? What is your gameplan? To answer these questions, perhaps we could start by looking at what a buyside process would look like.

And here, we break things down into five stages: the set up, initial proposal, due diligence & valuation, final proposal & negotiation, and finally, signing & closing.

The Set Up

As a first step of the project, you need to set up your M&A swat team.

Internally, you will likely involve key C-suite executives, relevant business unit heads, head of legal and a corporate development manager, if there is one.

Regardless of the team composition, you would want to have an internal project manager to take lead on the deal.

At the same time, you will also start to scout for your external advisors. We would recommend that, at minimum, you hire experts to assist in your financial, tax, and legal due diligence, and also legal counsel to assist in contract drafting and negotiations. Even though you may not want to onboard them immediately, you should already begin the selection process, so that they can start as soon as you need them.

Then, draw a project time table and share it with your team members. Even though 99% of the time, you may find your deal timeline to be aggressive in hindsight, it is always good to have a plan so that you can keep things going.

Set out key milestones in the next few months, and list up your detailed to-do lists for the next weeks. We know you are busy with daily operations already, and thus it is important to find a regular venue for all team members to share important deal update.

Once you are ready, schedule a kick off meeting with all the identified members so that everyone is up to speed and on the same page with all the key deal information.

Initial Proposal

After setting up your team, you then proceed to prepare an Initial Proposal to send to the target company. Some people may call the initial proposal a non-binding Letter of Intent, or LOI.

At this stage, you will approach the target company with the aim of bringing them to the deal table and winning the ticket to go into due diligence.

In order to be effective in your LOI, you will want to articulate the benefits that the seller and target company will get by doing a deal with you. You will want to be clear regarding your strategic rationale, post-merger integration plans, indicative valuation, proposed structure etc.

Depending on the target company’s status, you may have very little financial information to put together an indicative valuation. But don’t worry, the terms are non-binding and would still be subject to customary due diligence and discussions. So make sure to propose detailed and concrete requests for due diligence with a timeline.

In addition, being genuine and respectful in your letter is essential to set the right tone for your upcoming deal discussion.