Addressing valuation mismatches
- Greater transparency by both buyers and sellers around deal drivers can increase trust and dispel unfounded expectations.
- Sellers should not assume that an HGM company may have easier access to capital, including state funds.
- Sellers need to understand the buyer’s investment timeframe and shareholder environment before setting premia – Sellers may demand a higher premium from buyers they think are likely to be slow to complete.
- Clarify valuation techniques to ensure both parties are working with the same parameters.
- While multiples can be a guide, past deals are not always a reliable yardstick.
Agreeing a timeframe for completion
- Both parties need to understand what constitutes a ‘normal’ timespan for negotiations and completion for the other party to set expectations from the outset.
- In cases where special approval processes need to be followed, e.g. the deal needs to be vetted and/or finance approved by a regulator, buyers should educate sellers early around their approval processes and timelines so that they do not become an obstacle.
- Foster relationships with key decision-makers from an early stage so that dialogue is possible if the deal timetable begins to slip.
Connecting with decision-makers
- Take time early in the process to understand decision-making hierarchies – and who has the final say. This is particularly true for deals involving State Owned Enterprises.
- Buyers bidding for targets with Private Equity involvement should have direct contact with the PE side as well the target company’s management.
- The time needed to develop relationships varies greatly from culture to culture; consider this when approaching decision-makers. Seek advice from people who understand these finer points and stay attuned to signals.
Reconciling deal process differences
- Plotting the deal process and due diligence approaches of both the buyer and seller will highlight where they diverge and provide a basis for discussion.
- Communicating the reasoning behind due diligence practices can make the other party more comfortable/willing to cooperate with the process.
- High growth markets can have very different reporting, tax and legal demands and systems that can slow the due diligence process and necessitate more requests for information: both the buyer and the seller need to be explicit about this.