Deal initiation or ‘match making’ is not a new concept in corporate finance circles with some parties preferring to undertake off market transactions to avoid the competitive nature of the higher profile auction processes. Naturally, as with any transaction, a focussed deal initiation approach can bring benefits to both buyers and sellers, ultimately the amount of time saved compared to a marketed approach is immeasurable for a number of reasons but often significantly less.
From an acquirer’s perspective, off market transactions tend to be favoured to avoid the competitive nature that a marketed approach seeks to generate. Whilst this may not always lend itself to the buyer paying less, it certainly facilitates the opportunity to gain a more in-depth understanding of the business over an extended timeframe. In addition, it can provide a much better forum to discuss commercial issues and market conditions with a view to establishing how the target could benefit from any transaction.
Conversely, from a seller’s point of view, being approached tends to put the shareholders in a stronger position with respect to placing the onus on the buyer to set out their strategic objectives which have motivated the approach together with the intentions for the business and its current owners should a transaction be successfully completed. It also avoids the requirement to invest management time and effort in producing detailed marketing materials for third parties, which is required for an auction process.
From our experience, it is very evident that although some sellers do not wish to entertain a full marketing process they are often happy to entertain an approach from a prospective buyer should they feel that it would be of benefit to themselves and the business. This proactive deal initiation approach has influenced our own deal activity as we continue to invest significant time and resources with a number of trade players and private equity houses with a view to initiating strategically compelling transactions.
For more information please contact Callum Gray (firstname.lastname@example.org) or your usual AAB contact.
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