December 7, 2018

M&A Trends: The Need for Speed

In today’s highly competitive M&A market, potential buyers look to differentiate themselves in a number of ways – and this William Blair memo says that many buyers are using their ability to move quickly and provide a high certainty of closing to separate themselves from the pack. This excerpt highlights some of the ways buyers are working to shorten the time of their deals:

Securing financing earlier in the process: Potential buyers are talking to lenders and lining up financing much earlier in the sale process. A decade ago, buyers would typically wait to secure financing until they had won the bid and gained exclusivity. Starting a few years ago, however, it became common to see this work being completed by all of the final bidders. But today, it’s not unusual to see several bidders begin working with lenders in earnest during management presentations and then have their financing nearly completed by the time final bids are due.

Growing adoption of reps and warranties insurance: Once viewed as an optional tool to enhance a bid, representations and warranties insurance has become table stakes in today’s M&A environment. By shifting risk from the seller to an insurer, reps and warranties insurance allows for faster, smoother negotiations. While the popularity of this insurance has been driven by financial sponsors, many strategic buyers have begun using it as well—an acknowledgment of their need to move quickly, especially when private equity firms are involved in the bidding.

Front-loading the diligence work: Buyers today are completing much of their diligence work well before a formal process officially launches and spending large sums on third-party legal and accounting fees early in the process. Not only does this signal to the seller that the buyer is serious and well-positioned to move quickly, these up-front investments also allow buyers to be more selective in identifying targets for which they have a unique angle to winning the bidding process.

Buyers in public company deals sometimes look to expedite the transaction process by structuring their transactions to incorporate a front-end tender offer, and efforts to complete integration plans prior to winning a bid can permit buyers to provide transparency concerning their plans for the company following the deal.

John Jenkins