There are a few things you should consider as you expect to receive an offer for your company from a prospective buyer.
More and more firm leaders in architecture, engineering, and environmental consulting firms are beginning to open their eyes to the benefits that a merger or acquisition could have on their firm. This increased interest is leading to more activity and more transactions that we at Zweig Group expect to continue into the foreseeable future. The new infrastructure bill and the "great resignation" are just a couple of the many factors contributing to this increased M&A activity. (See my 2021 article “Why You Should Be Open to M&A” for more information on other factors contributing to this surge.) As a seller in this accelerated marketplace, it can be nerve-racking when you’re expecting an offer (or multiple offers) for the acquisition of your company. The good news is there are things you can do to prepare yourself.
It is critical for sellers to spend time preparing to receive an “offer,” typically delivered in the form of an Indication of Interest (IOI) or a Letter of Intent (LOI), before they actually receive one. The primary reason for this is that you need to be able to respond quickly, ideally within two weeks, to maintain the momentum and goodwill that you’ve built over the course of your preliminary M&A discussions with a given buyer. You’d be surprised how quickly some buyers can lose their patience, especially when they feel like the time and effort that they’ve spent developing their offer isn’t being reciprocated. Many offers will also carry expiration or “reply by” dates of two to three weeks in the future. This may sound like a lot of time, but consider how long it will take for your legal and accounting teams to review and it starts to make more sense why it helps to be prepared.
To ensure you are putting your best foot forward during this stage of the M&A process, there are a few things you should be thinking about as you expect to receive an offer for your company from a prospective buyer. This list is certainly not extensive:
- Price, terms, and conditions. How will the deal be structured? How will the buyer be valuing your firm? Do you know what your own value expectations are? Will it be an asset or stock transaction? Are there earn-outs involved? How is working capital being calculated?
- Profile and background of the buyer. You’ve hopefully spent a good amount of time talking about this with a buyer before you receive an offer from them, but you should make sure you have a firm understanding of who they are as a company and how they align with what you are looking for, as it is easy to get caught up in negotiations and lose track of what your goals were initially. The buyer’s background includes but is not limited to: history, culture, reputation, past M&A experience, organizational structure, service line and market sector breakdown, and client base.
- Integration and employees. How will your staff be integrated into their organization? What will be the roles of key leadership going forward? Are there expectations that specific people need to stick around for a period of time? How will you message this transaction internally to your employees? How will your existing offices and leadership be structured? How will the new entity be branded going forward? Will there be employment agreements? For whom?
- Clients. How will you message this transaction externally to clients? Will the relationships with key clients need to be transferred in any way? How will this process be organized so that the client still receives the same level of service? Will there need to be a consolidation of CRM databases?
- Due diligence. The buyer will provide a list of due diligence requests for you to provide once you are under exclusivity. This list typically includes but is not limited to: more detailed financial information, standard operating procedures, benefits information, project related documents, insurance, inventory, and many others. It is in your best interest to begin working with your finance and administration departments within your firm to organize this information in a way that will make the due diligence process easier to digest. Having this information organized will generally make you more attractive to any buyer in the market anyways, so it is always a good idea to be thinking about this aspect of the process ahead of time.
John Bray, CM&AA is an advisor with Zweig Group’s M&A and executive search teams. Contact him at jbray@zweiggroup.com.