CORPORATE TRANSACTIONS (M&A) AND THEIR SIGNIFICANCE

Those of us who are dedicated to professional services are well aware of the importance of brand recognition and brand value. Image is directly related to your persona, since you are not offering a tangible product in the marketplace. This subtle nuance, sometimes, can become the spearhead at the moment of offering and getting any potential project. Currently, professional services (in some cases) are still not valued as they should be, from not only a fee point of view, but also taking into account other perspectives.

One example – which will be discussed in this paper – are corporate transactions (mainly capital increases and sale of companies), where companies that have already tried it previously are more aware, but those seeking it for the first time tend to be mostly distorted or focused only on the end and not on the means necessary to achieve success.

In this case, we want to focus on transactions of more than €0.5M, since it is true that for a lower amount the process is less demanding in terms of requirements and documents to be prepared. From the mentioned amount and onwards, a process of capital increase or sale of a company follows a very structured process that must be fulfilled in the best possible way.

Beyond understanding, mastering and working with the project, a series of specific documentation must be prepared – together with the company – that will serve to be able to go to market with guarantees.

Despite the above headlines, we would like to highlight some aspects that mark and define the transcendence of a process such as this:

• Be aware of the importance of the process: It is one of the most relevant processes that the company goes through (if not the most important). As a company, the ability to move forward, to grow or to sell depends on this process; but in all cases, we are talking about a significant transcendence that culminates all the efforts made so far. For this reason, it is important that the management understands it as such, dedicates all its efforts to the process and gives its support in the preparation of the necessary information.
• Process of building trust and knowledge of the project: This type of assessment is by no means a quick or simple process. It is necessary to “show” the soul of the company in order to get the consulting firm to understand and show the company to its full potential. Therefore, we are not talking about an external supplier but about a team that will represent and talk about the company in front of the market. Therefore, it is important to have extreme confidence in the people managing the project. The more information and resources we consultants receive, the better we can do our job.
• Minimize risk with professionalism: Following the previous point, the risk of not having guarantees in an operation of this type can lead to failure or stagnation. It is necessary to carry out all the documentation that a process like this requires and to be accompanied by professionals who are experts in the field. To carry out this type of operations internally, when it is a relevant operation, is not possible without experts, but the most important thing to take into account is that it wears out the operations and the day to day of the company, which we cannot afford in a process like this. Individuals, investment group or corporation willing to invest in or purchase the company will scrutinize the company’s history and future, but especially the recent months while studying the opportunity.

• Solvency and financial rigor (not brokers): We are not dealing with a project where the work of the advisory firm is only to bring two parties into contact. Therefore, it would be a mistake to understand that this is the only task of the advisory firm. We, the advisors, have to maintain rigor throughout the process, but especially in the financial aspect. Some companies tend to want to project results that we all know will not be fulfilled, either to try to argue a potential growth, a higher valuation or an international expansion that does not exist today, among others; but the truth is that what this type of actions cause is that people or companies dismiss to participate in a project like this.

• The closing of the transaction cannot be 100% assured: This is a determining aspect in a process of this type. When the closing of an operation does not depend on us, but on the will of a third person, group or company, as professionals we cannot guarantee a final success. We will carry out the project in the best possible way, but in no case, we assure 100% of the closing. It is obvious that all companies are different and have their peculiarities, which causes that with experience we detect (or think) that has more or less possibilities, but in no case guarantees; since, in fact, over the years you realize repeatedly that the market can always surprise you in both directions.
• Facing a fixed fee without knowing if the transaction will be closed: In conjunction with the previous point, this can also be a limiting aspect of contracting this type of service. Although some consulting firms do it, at ST strategy we have never considered carrying out a process of this type without a fixed fee (beyond the variable fee in case of success). We are aware that carrying out an operation of this type without closing guarantees is a financial risk for the company, but it is necessary that we do our job in the best possible way. During the first months of the process, beyond understanding and knowing the business, a high volume of documentation is generated (informative document, financial plan, valuation, potential investors document, among others) which is indispensable for the process. In case of not receiving a consideration for this part of the process, in addition to not giving value to this first part, it would cause the advising company to focus little on the process prior to going to market, which normally leads to a non-closing of the operation due to an insufficient previous analysis.

In addition to the points mentioned above, a relevant aspect in ST strategy (but not in all the companies of the sector) is the accompaniment until the day of the signing. We consider that it is a mistake to carry out only the initial generation and preparation phase, or to carry out the negotiation process in the market with information that we have not generated ourselves, since in either case there is a lack of information to be able to do the job properly. Additionally, and following in this line, we provide support for the type of process, a very hard process from a psychological point of view (with constant changes at an emotional level), but also very intense, especially in the final part, where a clause or detail can destabilize the project.

In operations such as these, it is important to know what concessions you have to give in order to end up winning in the final position.