(a free paper by Merrill)

1. White Paper
PART 1 OF 3
Executing Effective M&A:
Critical Considerations from
Pre- to Post-Deal Closure
M E R R I L L D A T A S I T E

2. Contents
PART 1 OF 3
Executive Summary 3
Creating an M&A masterpiece 3
What time is the right time for M&A? 3
Preparing for success: Going to market and preparing for due diligence 4
How a virtual data room (VDR) enhances pre-deal preparation 5
Next time… 6

3. Executing Effective M&A: Critical Considerations
Executive Summary
Executive Summary
In the world of mergers and acquisitions, executing a smartly conceived, well-timed
plan is everything. To be successful, M&A activity must have clearly defined goals that
are communicated repeatedly to all team members, and the deal must follow a structure
that allows those goals to be accomplished in a methodical way.
Most importantly, M&A transactions that succeed in creating enhanced value always
follow certain steps before, during and after the deal itself.
In Part 1 of this 3-part series on Executing Effective M&A, we will examine the critical pre-
negotiation preparations that must take place to properly position a deal for success and
ensure value creation after the deal is done.
Creating an M&A Masterpiece
Industry experts in the M&A world sometimes refer to “the art of the deal.” It’s a phrase
that encompasses the hard-to-characterise actions that separate a successful venture from
one that’s doomed to failure, and it includes the experience, insight and knowledge
displayed by the deal team in order to ensure that a transaction ultimately creates the
value that was intended.
But, bend this metaphor into a slightly different shape and you see that the “art” of a
deal might only be a rigorous process, impeccably implemented.
Imagine an M&A transaction is an actual piece of art, perhaps an oil painting by a
With M&A, each step in master craftsman. The painting process is broken down into a series of discrete steps
the process—from long before the masterpiece is achieved. The artist first must select a compelling subject,
before the deal begins assemble the right paints, solvents and brushes, create and refine the initial sketches,
until after it’s concluded— and then continually rework the final image until the piece is finished and its worth
must occur with the proper can be assessed in the marketplace.
subject, in the proper
Similarly with M&A, each step in the process — from long before the deal begins until
place, at the proper time,
after it’s concluded — must occur with the proper subject, in the proper place, at the
using the proper tools.
proper time, using the proper tools.
Companies must painstakingly select the correct potential target from among all the
possibilities available to them; they must assemble the people to pursue the project, they
must conduct rigorous due diligence to fully understand the deal, and once it’s done and
the two new entities have been integrated, only then will management understand how
the market values their creation.
Both acquirers and sellers can benefit from examining their deal-making in light of this
progression from beginning to middle to end. Following each stage methodically, as well
as industry best practices, can ensure that a deal is ultimately successful on all levels.
We will start by examining how the M&A process can be positioned for success even
before the deal begins. (In Parts 2 and 3 of this series, we will look at best practices
during deal due diligence, and also best practices for post-merger integration.)
What time is the right time for M&A?
M&A activity occurs whenever a company or group decides to pursue changes that will
result in a greater monetary value being created than previously existed. Today, however,
a number of factors are combining to make the M&A process more fractured, more
complicated and lengthier than ever before as would-be buyers exercise extreme levels
of caution for fear of making a poor buying decision during turbulent times.
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4. Even during periods of uncertainty, however, companies who want to grow still seek
new product lines, new markets and new geographic inroads. Organisations that wish
to sell an asset want to realise the value they’ve achieved with that product or they
want to move in a new direction when that asset is no longer necessary to the strategic
corporate direction.
In either case, both buyers and sellers could benefit tremendously by positioning
themselves for M&A efforts long before they sit down with a prospective partner.
In fact, preparation for M&A should begin as much as 18 months prior to an actual deal,
particularly in light of today’s market where buyers are weary of economic turmoil,
political uncertainty and increasingly litigious and regulated conditions.
In some sophisticated companies with extensive experience in M&A, such as private
equity (PE) firms who manage a large number of portfolio companies, internal company
documentation may be assembled and prepared a year or more prior to a potential sale.
The reason?
PE management know exactly what type of documentation and information potential
acquirers will be looking for and the format in which they will be most easily able to
review it. Starting preparations early allows them to precisely tailor that information to
match the requirements of due diligence.
In addition, by beginning to prepare and collect all M&A information well in advance
of a sale, everyone on the PE deal team has time to carefully examine and digest that
information. They can take the time to identify potential gaps or areas where more
documentation is needed. They can do a “dry run” due diligence on their own data,
testing that their information systems and financial data are both solid and that their
internal processes stand up to scrutiny.
They can also anticipate the types of red flags that a purchaser might find alarming and
then work to reduce those issues and ensure full disclosure in order to increase a buyer’s
confidence levels. These sophisticated players in the M&A world understand that a good
process that contributes to faster, easier due diligence results in a better M&A experience
Preparation for M&A
for everyone involved.
should begin as much as
18 months prior to an Unlike other companies who have little to no experience with M&A, PE firms
actual deal, particularly in understand this before-deal preparation will eventually allow them to sell their portfolio
light of today’s market companies to the right buyer, at the right price, in an expedited fashion.
where buyers are weary of
economic turmoil, Preparing for success: Going to market and preparing for due diligence
political uncertainty and
It’s a truth that shows up repeatedly throughout the M&A world: Deals that drag on and
increasingly litigious
on often have an unsatisfactory outcome. A key reason that deals get bogged down in due
and regulated conditions.
diligence is that often a company has not properly prepared for the process.
Due diligence processes that tend to falter are ones where the target company really didn’t
understand what types — and how much — information a thorough due diligence review
would demand. In that case, would-be purchasers must continually request more and more
information to complete their diligence, which both slows down the deal and gives the
impression that the target company is lax and unprofessional.
In an unprepared company, documents have to either be gathered ad hoc, or in worst-case
scenarios, even created ad hoc because they don’t exist in a usable format. That puts
incredible strain on internal resources within the company, and hurrying to supply
documents in response to specific requests can lead to mistakes and other errors that will
potentially kill a deal.
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5. Executing Effective M&A: Critical Considerations
From a seller’s perspective, preparing for due diligence involves assessing how an asset can
be best packaged for sale. Especially in the type of buyer’s market that seems to exist now
throughout the world, company management must decide early on how their asset might
best be restructured, fine-tuned and ultimately financed.
By starting the process early, in advance of actual negotiations, the owners of an asset have
the opportunity to present it in the best light. They can proactively address any possible
A VDR keeps everyone red flags that might trip a potential buyer, such as regulatory, compliance or even political
focused inside one concerns for the market in which they operate. This is particularly true for companies that
homogeneous platform to operate in certain emerging markets where the potential for corruption has been well
accomplish the document reported, or in markets where increasing government oversight and regulation of issues,
collection. It expedites such as bribery, are on the rise.
information gathering by
In addition, the faster an asset can be prepared for due diligence, the more ability a seller
allowing for collection and
has to quickly react to fluctuations in the market. If a would-be seller maintains a state of
verification of exactly
asset-readiness by beginning document collection well before an expected deal, it becomes
what’s needed, including
possible to quickly pull the trigger when market windows open.
the right version of any
particular document. Pre-deal preparation is also important for prospective acquirers today.
For companies considering an acquisition, it’s critical for those involved to painstakingly
identify and then communicate what they want to accomplish with an acquisition: Is it to
extend the corporate footprint, to bolt-on an opportunity, to gain a geographic foothold in
a certain region or even to take out a competitor?
Aligning the due diligence team with the corporate goals from the outset is essential. Taking
the time internally to focus the acquisition team and key internal contacts on the merits of
an acquisition ultimately lays the groundwork for a gratifying deal conclusion.
How a virtual data room (VDR) enhances pre-deal preparation
A good document process and a good system that fosters thorough reporting on critical
subjects, such as financials, legal and regulatory compliance efforts, anti-bribery provisions,
intellectual property concerns and human resources issues will go a long way to actually
executing a deal. As such, a virtual data room (VDR) can be the critical tool that allows
dealmakers to present all relevant information in a secure, centralised, Internet-accessible
and easy-to-use format.
Another benefit of employing a VDR before you go to market is that it easily allows you
to coordinate a geographically dispersed team without expensive and time-consuming
travel. A VDR greatly simplifies coordinating pre-deal activities with expert advisors,
wherever they are located, including bankers and legal/accounting/HR experts. Everyone
can gather and post information to a single, secure platform, and then use that platform
for all pre-deal reviews.
By using VDR technology to benefit the deal team, worries over e-mails that could
potentially be leaked, or the problem of attachments that are too large to transmit easily
are removed. And, because the VDR serves as a central repository, it’s much easier to
keep multiple people from duplicating effort. A VDR keeps everyone focused inside one
homogeneous platform to accomplish the document collection. It expedites information
gathering by allowing for collection and verification of exactly what’s needed, including
the right version of any particular document.
Using a top-line VDR also means that potential partners from anywhere around the world
can easily log in to the VDR to conduct early, “first look” due diligence. If a VDR with
industry-leading security features is employed, dealmakers can remain in complete
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6. control of who sees what information by virtue of the ability to grant varying rights to
different users. There are no limits in terms of potential targets or potential acquirers.
A company in China could sell itself to a company in Ohio, and vice versa. A potential
acquirer can log in to the VDR from their desk and examine a potential acquisition
anywhere in the world. This is clearly another benefit to employing a VDR: by making it
exceptionally easy for potential partners to review a deal, the potential buying audience
for an asset is greatly expanded.
In addition, by using the specialised tools built into the highest-quality VDRs, once
By making it exceptionally potential partners are invited to review the deal, an effective audit trail is established,
easy for potential partners along with excellent insight into a potential partner’s motivations. The VDR “owner” can
to review a deal, the see exactly what information different groups are viewing, down to the exact amount of
potential buying audience time they have spent on a particular page. This provides critical insight into what a buyer
for an asset is greatly might have concerns about, and allows time for a proactive response.
expanded.
From the buyers’ standpoint, using a VDR as a due diligence vehicle means they will see
a well-organised, searchable repository of documents provides a favourable impression
of the asset, and the company selling it.
Finally, if the correct VDR from a 3rd party vendor is selected, advantage can be gained
from their extensive industry expertise, including pre-built indexes designed specifically
to help post the right types of information for more than 250 specific industries, such as
mining or technology or pharmaceutical sales, or for specific deal types, such as distressed
asset sales or bankruptcy actions. Selecting the right VDR partner can also provide access
to their expert consultants who can help design a best-practice workflow among team
members to enable the end goal to be achieved more quickly.
Next time…
In Part 2 of Executing Effective M&A, we will examine best practices for due diligence
during the deal, and in Part 3, we will look at how you can employ specific tools to
improve post-deal integration.
To learn more about how Merrill DataSite can help you prepare for your next
M&A Transaction, visit www.datasite.com or e-mail info@datasite.com today.
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7. About Merrill DataSite
Merrill DataSite is a secure virtual data room (VDR) solution that optimises the due diligence
process by providing a highly efficient and secure method for sharing key business information
between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well
as real-time activity reports, site-wide search at the document level, enhanced communications
through the Q&A feature and superior project management service — all of which help
reduce transaction time and expense.
Merrill DataSite’s multilingual support staff are available from anywhere in the world, 24/7,
and can have your VDR up and running with thousands of pages loaded within 24 hours
or less.
With its deep roots in transaction and compliance services, Merrill Corporation has a
cultural, organisation-wide discipline in the management and processing of confidential
content. Merrill DataSite is the first VDR provider to understand customer and industry
needs by earning an ISO/IEC 27001:2005 certificate of registration — the highest standard
for information security — and is currently the world’s only VDR certified for operations in
the United States, Europe and Asia. Merrill DataSite’s ISO certification is available for review
at www.datasite.com/security.htm.
As the leading provider of VDR solutions, Merrill DataSite has empowered nearly two million
unique visitors to perform electronic due diligence on thousands of transactions totalling
trillions of dollars in asset value. Merrill DataSite VDR solution has become an essential tool
in an efficient and legally defensible process for completing multiple types of financial
transactions. Learn more by visiting www.datasite.com today.
About Merrill Corporation
Founded in 1968 and headquartered in St. Paul, Minn., Merrill Corporation
(www.merrillcorp.com) is a leading provider of outsourced solutions for complex business
communication and information management. Merrill’s services include document and
data management, litigation support, language translation services, fulfilment, imaging
and printing. Merrill serves the corporate, legal, financial services, insurance and real
estate markets. With more than 5,000 people in over 40 domestic and 22 international
locations, Merrill empowers the communications of the world’s leading organisations.
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