Recent reports of the aborted private equity takeover of Tyro Payments proves that timing is everything in Mergers & Acquisitions, and delays can kill deals.
The Tyro experience reportedly involved over 9 months of negotiations before the potential acquirer walked away. Tyro shareholders immediately suffered a 20% drop in the share price.
The underlying reasons which caused the deal to fall over were no doubt many and varied, but were also probably amplified by the current economic uncertainties. At the same time, there are willing sellers and cashed-up buyers in the market for deals, presenting opportunities on both sides.
So what can be done to manage deal risk caused by delays in deal execution?
These are our top 10 tips:
- Be absolutely clear on the answer to the question of why you want to buy or sell – use that as a reference point throughout the process when negotiations may stall.
- Agree on a deal timetable and key milestone dates, and stick to the timetable.
- Engage your legal, tax, financial and commercial advisors at the start of the process – avoid delays caused by surprises when key issues are not identified and addressed early in the process.
- Invest in applying the necessary people and resources to deal execution – trying to combine people’s ordinary day jobs or business as usual tasks with a deal process is a common cause of delay.
- Make sure the business is deal ready – sellers should put themselves in the buyer’s shoes and sort out problems that could cause a buyer to walk away or drop their price.
- Get legally binding commitment on the key terms as soon as possible – narrow down the list of conditions which may give parties an exit option.
- For sellers, anticipate the due diligence process by gathering the necessary information and presenting it in a secure online data room.
- For buyers – be clear on the due diligence scope, what’s going to be important and material in your decision making and what is not so important.
- Identify and engage with third parties who will have a say in deal timing and execution – eg. financiers, regulators, landlords, key contract counterparties.
- Have a fall-back position if the deal falls over – break fees should be negotiated to cover deal costs if a party walks away.
Please contact the Russell Kennedy M&A team for support with your next deal.
For examples of our recent deals you can visit our M&A page.