In this article we look at the structure of a typical mergers and acquisitions (M&A) deal, before hearing from a Managing Director at the leading investment bank Rothschild about his experiences of working in M&A.
The key steps in an M&A deal
Bankers working in M&A provide financial and strategic advice to corporate organisations that usually leads to the organisation either selling or acquiring a business or part of a business.
Let’s take what happens when bankers are advising a client selling a business as an example:
1. Preparing for the deal
The first stage of the work is preparation. The M&A team at the bank working on the deal value the business being sold, identify potential buyers, and map out a timetable for the deal process, which will typically last between three and six months.
2. Getting other advisors on board
The M&A team will then assist the client with getting the other advisors needed on board. Lawyers and accountants will nearly always be needed and, depending on the deal, pensions, environmental or insurance specialists may be instructed too.
3. Gathering and sharing information
Next, the M&A team will prepare a document summarising the key information about the business to be sold that will be sent to potential buyers, known as an information memorandum.
At this stage they will also set up an actual or virtual “data room” where key documents about the deal are stored and can be referred to by the parties involved.
4. Liaising with potential buyers
The next stage is speaking to potential buyers. Typically, the M&A team will provide them with the information memorandum, plus any other information they need from the data room, and then allow them three to four weeks to put in a bid.
5. Negotiating terms
Once this time period is up, the M&A team and the client will look at the bids they’ve received and decide which ones to take forward.
They might choose to start negotiating with just one bidder, or put a few bidders into what is usually a competitive and very fast-paced race to see who produces an acceptable deal first.
6. Finalising the deal
Once the key terms of a sale have been agreed with a bidder, the M&A team advises the client on finalising the legal agreements for the deal and helps to ensure that the transaction is completed.
My experience of M&A: Ravi Gupta, MD at Rothschild
What kind of work do you do?
I provide strategic and financial advice to corporations, governments and individuals, of which M&A advice is the lion’s share.
What I do is about having a relationship with a client, advising them and helping them execute whatever deals or other corporate activity we all believe will enhance shareholder value.
What kind of clients do you act for?
My specialism is the industrial sector – essentially engineering-related businesses.
My clients include Rolls Royce; Rexam, a manufacturer of soft drinks cans; Meggitt, a very large aerospace, defence and energy company that specialises in wheels and brakes; and Laird, which supplies components for iPhones.
I also advise private equity firms buying or selling engineering companies.
Can you describe your deals?
Typically, I advise clients on future strategy and where I think their business is going.
I look at their balance sheet to see how healthy the business is; whether the way in which they’re financed needs refining; whether part or the whole of their business should be sold; or if there are gaps that we can try to fill by hunting for acquisitions.
The deals that stand out for me are the ones that are most complicated – hostile bids or ones that involve multiple geographies, products, or bidders. You’re using your brain a lot in these so, although they can be stressful, they’re always the highlights.
What do you enjoy about working in M&A?
It’s exhilarating to walk into a boardroom and advise very intelligent people who you can see are paying attention to what you say, and are likely to act on it.
M&A is also rewarding because you’re adding value to corporates and ultimately to shareholders. And at Rothschild we sometimes get to see a transaction that we’ve been involved in on the front page of the Financial Times, which is always a high point.
What kind of person is suited to working in M&A?
To do this job you need to be intelligent and hardworking. But clients won’t use you unless they also like you, so you’ve got to be able to get on with people too.
At Rothschild, our model is relationship banking and we’re proud of the fact that a lot of our business is repeat business. So we look for graduates who, in a few years’ time, we can see having the ear of a chief executive, giving them ongoing advice that’s trusted.
What are the current big issues in M&A?
Deal volumes are still relatively low compared to before the financial crisis which means that a good business put up for sale always attracts plenty of interest.
Here at Rothschild, we’re involved in a very large number of M&A deals so have a lot of intelligence about potential buyers that we use to help our clients judge which offers are serious and worth considering.
Another trend at the moment is that the banks are keen to lend, which means very attractive financial packages for buyers. In addition, corporates have built up cash since the financial crisis so are looking to make purchases, which is pushing up prices and leading to more bank debt being made available for deals.
Given this amount of liquidity, I think that deal volumes are going to increase. The next decade is going to be a very exciting period for M&A.