M&A deals must be transacted in as short a timeline as possible. Thought should be given to creating a plan that will result in success for both parties, otherwise an already lengthy and complex process can spin out of control. It is generally accepted that shorter deal times result in higher premiums and valuations.
Extending the due diligence phase of life science M&A (mergers and acquisitions) deal negotiations is a proven tactic that leads to the practice known as ‘price chipping’ (reducing the deal price). This delay is designed to cause uncertainty in employees, customers, and the market due to the longer-than-anticipated deal time, thereby forcing a more aggressive pricing strategy by the buyer.
Mergers and acquisitions (M&As) generally come in four flavours:
- Horizontal – The company decides to buy another with similar products
- Vertical – The company decides to buy a supplier or customer
- Concentric – The company decides to buy another whose products or services complement its own
- Conglomerate – The company decides to buy another that will widen its appeal to the market
M&A transactions, depending on whether it’s a licensing, collaboration, externalisation or divestment deal, take at least three months, and could go on for years depending on the size, complexity, or regulatory requirements. Maintaining the security and integrity of related sensitive corporate information documents is critical, and can be tedious, as well as labour-intensive.
Plan, or fail
But the one thing all deals of all types have in common is that it is imperative to prepare a comprehensive plan detailing required financial, legal, and corporate disclosures to support a timely and managed process.
Here is a sample of the end-to-end information requirements and components of a typical M&A sell-side transaction. Ensuring most, if not all, of these steps are followed will ensure success and reduce unanticipated complications arising.
M&A deal step-by-step sequential planning guide, from the seller’s viewpoint:
- Prepare a divestment strategy – This demonstrates to the board that there is an M&A plan and what it is designed to gain for the company
- Prepare the asset(s) for sale – ensure that you understand and can demonstrate the drivers of value
- Detail M&A criteria – To identify potential target buyers and on what basis
- Identify potential target buyers – Use identified search criteria to discover and analyse companies
- Divestment planning – Contact target companies to discuss possibilities of a merger or acquisition
- Valuation and deep analysis of targets – Ask target companies via a Confidential Information Memorandum (CIM) for financials and corporate structure details, together with additional related information they believe will support a successful conclusion to the deal for both parties
- Negotiations – To prepare an offer document after gaining a comprehensive understanding of the target company and deciding to proceed. Post initial offer, the two entities can negotiate the terms in more detail
- Due diligence – Begins when the offer has been accepted. This aims to support the company’s assessment of the target company as to financials, valuation, and complementary operational areas such as its financial metrics, assets, and liabilities, customers, human resources, etc.
- Contract of sale – A final decision is made on the style of the purchase agreement (asset purchase, share purchase, asset licensing, etc.)
- Financing strategy – Details of financing after the purchase and sale agreement has been signed
- Acquisition closure and target integration – Both sides’ management teams work towards a smooth merger with the target and its operations
M&A market is buoyant
According to Company Valuation Services UK, corporate buyers and sellers see opportunity in the post-Brexit, post-Covid future. After dropping steeply in early 2020, low-interest rates and an optimism-fuelled high demand showed a rise beginning in June 2020. Indeed, the Life Sciences M&A market saw a very healthy rally to reach a 70% increase in transactions in February 2021 as compared with February 2020.
M&A transactions can swiftly descend into chaos if the complexities inherent in these deal processes are not understood and mitigated by a robust, comprehensive, and finely managed plan.
A key point of failure can be the data room.
VDR platform supports a secure and flexible transaction
Traditionally, data rooms involved reams of printed paper and bound documents covering the entire spectrum of a seller’s or buyer’s company’s corporate information. Providing security and tracking the usage of these documents by company/person/department etc was complex and time-consuming.
Historically, it was also difficult to gain any intelligence on which documents were being read in the data room, which were taken away as a copy (were they returned?), how many Q&As were being generated (and by which document/information, etc) and, above all, maintaining a level playing field for seller’s/buyer’s personnel with regard to access.
A solution that is continuing to gain momentum in relation to complex transactions of all kinds is the provision of ‘Virtual Data Rooms’ (VDRs). Unlike physical rooms, the virtual version is a controlled, secure, and always available environment that is ultimately flexible. Every single stage of an M&A deal can have varying degrees of security, availability, and size.
Sterling Technology is the leading European provider of premium VDR solutions for the secure sharing of content, business process automation, and collaboration for the M&A community.
Questions Sterling’s VDR can answer:
- Want to know who looked at financials? No problem
- Who downloaded the deal prospectus? Only registered users can do this
- How many people asked questions about the deal valuation? Again, only certain authorised personnel can ask
- Do you need multi-lingual 24/7/365 support for the VDR platform and the deal? No issues
Tailoring a VDR to specific needs of an M&A deal
During the last 30 years, Sterling has partnered with some big names in the global life sciences field, and so has the pedigree, experience, and now, a technology stack to provide secure, robust, and flexible format VDRs, in which field they have been leaders for the last 10 years.
Whether you are in the market for licensing, collaboration, externalisation, or divestment deals, customers can engage with Sterling’s in-house experts to create a VDR solution that will be custom engineered to its precise needs.
After the number of deals they have partnered successfully, Sterling has prepared a number of flexible, but templated, solutions that would need a little tweaking to be applicable to a broad range of deal types.
This allows its clients to start with a VDR ‘light’ version in which their team can assemble, review and approve disclosures without the need to build a VDR structure from scratch.
Embedded tools for redaction and translation significantly reduce the resource investment required to handle sensitive disclosures.
Ramping up VDR functions for due diligence
As the deal progresses, clients can maintain a comprehensive view of how those disclosures are being accessed through named user information rights management, audit trails, and activity reporting to monitor acquirer/target activity. More and higher functions can be added as required:
- A Q&A function to provide records of questions, answers, and other disclosures
- Comprehensive functionality for the due diligence phase
- After the deal is done, the platform is stepped down to the file sharing and storage function
- New documents related to the post-deal transition process can be uploaded and made available securely (with audit trails and activity reporting) enabling metrics to be monitored and recorded for disclosure if required
By taking advantage of a custom-designed VDR from Sterling, clients can concentrate on ensuring the deal goes through a totally secure, highly efficient process that maximises the opportunity to generate value from the transaction.
Another by-product of such deals is that the buyers, of which there may be many, also benefit from, and learn about, this platform. They will experience its ease of use, security, and reports (which may be shared for disclosure purposes), and will definitely see the flexibility of a system that can start as something resembling a file-sharing environment (albeit extremely secure) at the beginning of the transaction, transform into a full-function SaaS software platform during the due diligence phase, and then revert to a more simple repository of documents related to bringing the deal to a successful close.
For more information on how Sterling Technology can support your next deal or project, please visit Sterling Technology.