Prepare For Marketing
Objectives
- Develop the understanding needed to identify the best buyers and optimally position the business to appeal to the targeted buyer universe.
- Client-approved list of potential buyers.
- Client-approved confidential information memorandum.
- Accurate historical financial statements in a format most useful to potential buyers.
Activities
In-depth business review and preparation of information memorandum
After being engaged, Woodbridge begins by performing due diligence on a client’s company. In due diligence, we collect the materials needed for the confidential information memorandum, seek an in-depth understanding of the attributes of the business that will attract buyers, and we look for potential concerns, drilling down to fully investigate any issues so that they may be addressed in a thoughtful, proactive manner.
Woodbridge develops accurate, compelling information memorandums designed to attract sophisticated corporate and institutional buyers/investors. The memorandum contains the information that is essential to provide to potential buyers so that our clients will receive credible proposals containing realistic valuations.
Financial analysis, modeling, forecasts
A detailed financial model may be the most important document in a recapitalization assignment. The model incorporates management’s assumptions and expectations for every aspect of the business. We develop a comprehensive financial model early in the process. Throughout the process, lenders and investors will refer to the model testing assumptions and making debt capacity and pricing decisions based on it.
Financial reporting of our clients varies in sophistication. Depending on the level of sophistication and reliability of the information, considerable up-front analysis may be required. It is essential to address any issues before presenting financial information to potential buyers. If a buyer discovers material inaccuracies later in the process, it is often a deal killer.
In some cases, the existing financial reporting does not provide all of the information buyers will want. Depending on the availability and reliability of underlying data, we may compile this information and include it in the information memorandum.
Prospective buyer research
Identifying the best buyers is a critical activity in this phase. We select potential buyers who fit best for a particular transaction. Targeted and exhaustive research using multiple sources is necessary to ensure comprehensive coverage. We seek a broad spectrum of buyers, but there must be a rationale for each candidate on the list. Under no circumstances will Woodbridge contact any buyer before our client approves the buyer list.
We purchase the most comprehensive, reliable database and search tools containing information on private and public companies, private equity sponsors, and specialized non-bank lenders. Additionally, we subscribe to research services that provide unlimited access to thousands of online databases and directories, periodical subscriptions, and securities research worldwide. Our philosophy is to use the best resources that are available today, while constantly seeking new and improved resources.
Private equity buyers and subordinated-debt investors are targeted on the following basis:
- Financial attributes of the client match the potential investor’s stated criterion.
- Related industry experience of the firm’s managing directors.
- Current or prior investments in related companies or stated interest in related industries.
Strategic buyers are targeted on the following basis:
- Demonstrated interest in related companies.
- Rationale for strategic interest in our client’s company.
- Acquisitiveness.
- Financial capability to complete an acquisition.
Effective strategic buyer research requires a strategy and process. First, we seek to confirm our understanding of the industry landscape and the relationships between the players. Next, we examine patterns of consolidation in the industry and identify consolidation drivers most applicable to our client. We then develop a thesis for positioning our client’s company to potential buyers and identify the key attributes to look for in buyer candidates. Before beginning our search, we review our thoughts on positioning and buyer criterion with our client, and solicit their input on our targeting criterion. Targeting begins with screening searches designed to identify buyer candidates with one or more of the desired attributes. Finally, we conduct in-depth research on each candidate to determine which buyers should be on the list.
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Marketing
Objectives
- Generate a group of interested buyers to create a competitive environment.
- Obtain proposals from potential buyers.
Activities
Marketing is an intensive phase because the success of our process depends on obtaining responses from all of the interested buyers within the same window of time. First, we make sure that the right people in the buyers’ organizations understand the opportunity. For those who express interest, we are persistent in persuading them to respond promptly.
Distribution of confidential information memorandums
We contact each buyer personally, reviewing the transaction first before sending out information memorandums. We strive to limit the distribution of our client’s confidential information to those parties who have the highest probability of completing a transaction. Offering memorandums are only sent to those parties who express an interest in purchasing the company and are willing to sign a confidentiality agreement.
Process rules
A process letter is typically sent with each memorandum. This letter explains the process and specifies rules for the buyers. A deadline is usually set for buyers to submit indications of interest if they wish to proceed to the next phase in the process.
Selection of the Buyer
Facility visits and management presentations are only available to buyers who submit written expressions of interest that indicate, among other things, the amount they are willing to pay based on the information that was made available to them in the memorandum.
Objectives
- Sign detailed letter of intent.
- Negotiate best terms and pricing.
- Choose the best transaction partner.
Activities
Management presentation
We assist management in developing an effective presentation that conveys their knowledge and passion for the business, helps them tell the story of the business and explains their competitive position. For recapitalizations / private placements, we also prepare our clients to address issues that are important to lenders.
Buyer’s due diligence
Data room—We prepare data binders containing more in-depth information than found in the information memorandum. This data is only made available to a select group of buyers who continue to express a high level of interest after meeting with management and touring company facilities. The purpose of the data binders is to expedite the process of getting definitive proposals from multiple buyers. It works because past experience tells us that certain items are likely to be requested by all buyers. Time is saved by preparing this information in advance.
Negotiating the best terms
Soft auction—Having created a group of buyers who have invested significant time investigating the opportunity, our senior investment bankers engage in a “soft auction” where we negotiate to obtain the best combination of terms and price. These negotiations can be tense at times; having our professionals conduct these discussions shields our clients from this activity, so that their relationship with the buyer is unaffected.
Through our past involvement in a wide variety of transactions, Woodbridge has developed considerable expertise in all aspects of deal structuring and negotiation. Consideration of issues such as earn-outs, contingent purchase payments, escrows, retained equity, non-competition agreements, seller representations, warranties and indemnification, and tax aspects must be carefully made before choosing the buyer as these items are often significant elements of value and risk in a sale.
After a buyer has been selected, a letter of intent is signed. This document contains the principal terms of the transaction and it serves as the basis for preparing the purchase and sale contract.
Documentation and Closing
Woodbridge facilitates meetings between the client and buyers as needed to reduce the number of open issues and maintain momentum to closing. The transaction terms will generally follow the outline in the letter of intent. Woodbridge works closely with the buyer, the client’s attorneys, and the client’s accountants to resolve issues as they surface. The ultimate objective is to create a Purchase and Sale Agreement acceptable to all parties.
Objectives
- Assist in facilitation of buyer’s due diligence activities.
- Address the final terms of the transaction for inclusion in the Purchase and Sale Agreement.
- Complete the transaction.
Activities
Managing the Process
Time is not an ally of a seller. The typical sale takes six to nine months to complete. The chance of adverse economic changes or operational problems in the business increases with time. Accordingly, we work as fast as possible without compromising results.
Process impacts timing. Our process is designed to maximize shareholder value, but depending on the client’s objectives, it can be shortened.
Confidentiality does not happen naturally. We work on maintaining confidentiality every day and are always alert to potentially compromising situations.
We work closely with our clients, seeking their involvement in making key decisions and keeping them informed of all material developments. We coordinate our efforts with our clients’ legal representation to have the requisite legal documents prepared in a form agreed upon by all parties and ready for signature.
Our clients are in a position to track our progress as frequently and with as much detail as they would like.