Learn about the promising sectors for the year 2021 and understand the steps of the M&A process.
Contrary to what many believe, the merger and acquisition (M&A) process is not limited to large companies. Although 2020 was a tough year, with the vaccine already being rolled out, the market is now looking ahead to the first steps post-crisis.
As a result, M&A activities have started to pick up steam again, making this the ideal time to assess strategies. Interested? Learn more by reading our content made especially for you!
Estimated reading time: 4 minutes
M&A
In general, it’s not only the company buying or selling that needs to engage in M&A activities. There is a lot of preparation to be done for a company to be sold, or even to better understand the business’s potential for a possible acquisition and expansion.
Therefore, there is homework to be done, regardless of whether there is an immediate interest in selling or acquiring. This involves a deep study of all the steps in a merger, acquisition, or sale, which is extremely important. From there, you are better prepared to understand your position in relation to all the processes, the challenges to be faced, and how the market operates in general.
M&A: Two Main Aspects
Regarding the reasons for engaging in M&A, there are two main perspectives. The first is: I have a business and I see that it could be significantly enhanced if I eventually had a partner who could bring not only capital but also expertise to my company, contributing to growth at a much faster pace than if I were on my own.
On the other hand, I may want to bring in a partner without necessarily staying in the business, or I may stay for a period and later exit. It’s a resource now, based on the value of my business, that would have only been acquired over time. Therefore, I am leveraging the profitability through the sale, even if I no longer own the asset that generated income.
The second aspect is from the buyer’s perspective. There are several reasons to acquire a company: you may be eliminating a competitor, adding a new portfolio to your business, expanding production, or creating synergies within the supply chain.
Promising Sectors for M&A
Regarding sectors, what I’ve been observing is that technology is obviously a key factor. Regardless of the industry, technology is what attracts many M&As. Therefore, having scalability in business is a major draw.
In the financial sector, especially with the rise of the Pix payment system, digital banks and the trend of moving from physical to digital services will greatly stimulate M&A activities. At Value, we have participated in various discussions and transactions related to the agribusiness sector. Healthcare, in general, was already a very hot sector, and with the COVID-19 situation, I imagine it has become even more attractive.
A derivative of agribusiness, and perhaps influenced by the home office trend, is the food sector. The food supply chain, in general, and the solutions available within this sector, are likely to attract a lot of interest due to the volume and growth that occurred in the past year.
How to Prepare?
Investors can prepare for this period by actively seeking opportunities and keeping their radar on for potential deals. Companies interested in investing commonly structure an investment thesis: target market, target company, company profile, partner profile, and profitability profile.
This investment thesis details what the ideal profile is, considering the investor’s characteristics. From this “map,” potential businesses that align with this line of thinking and expansion are sought.
Therefore, the first step, or preparation, in relation to this is to build a solid investment thesis. The second step is to have support from professionals specializing in market research, financial aspects, and legal matters, as these will be crucial. Finally, the third step is executing all of this if you find a company that fits within your “map.”
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M&A Steps: Buyer Perspective
- Develop your investment thesis and conduct market research based on that thesis.
- Seek financial and legal support for the transaction.
- Hire advisors to mediate the transaction and ensure a professional approach.
- Review businesses that align with your “map” and their differentiators: the partner, the company’s governance characteristics, and all financial aspects.
- Perform a company valuation.
- Write a letter of offer and, if accepted, finalize the transaction details.
- Conduct due diligence to ensure no contingencies, risks, or problems that have not been identified are overlooked.
- Proceed with the acquisition/integration process, or model how the business will be transacted. Decide if it will be integrated, have a subsidiary, or become an affiliate, for example.
- Integrate all systems and processes and align expectations for scaling the business moving forward.
M&A Steps: Seller Perspective
When we talk about the other side of the table, the company looking to SELL its business, the first step is also to seek out professionals, particularly in financial and accounting areas. Conducting a business diagnosis and valuation is essential—valuation to set a price and diagnosis to identify potential vulnerabilities, differences, and what the business owner should expect.
It is also recommended to create a teaser. This is a presentation of the business with concise but attractive material that highlights the company’s key differentiators. Afterward, the search for potential players interested in the company should be conducted in a highly professional and confidential manner, so as not to compromise the business in the market.
Once this is done, all the negotiation steps follow much like those discussed previously. From that point onward, if a potential buyer is found and shows interest, the process continues with the same steps: letter of intent, memorandum of understanding, due diligence, legal procedures, negotiation closure, structuring, and so on.
Count on Value!
Now that you understand the importance of the processes for a successful M&A and the promising sectors for the year 2021, count on Value to assist you on this journey! Let’s talk?
