Both parties look for chemistry and whether their personalities match. They also want to gauge whether there is a sense of excitement about getting together as well as their future prospects.
Translated for the PR agency world, that means both buyers and sellers need to find a comfort zone before they get into the nitty-gritty of what the two sides hope will be a fruitful transaction.
However, before they go down the proverbial aisle, buyers and sellers must resolve certain issues right off the bat, lock them down and not let them intrude on the M&A process moving forward.
Some issues to consider:
Both parties need to be in agreement that both firms should improve incrementally. Strategic and synergistic benefits trump financial ones.
Buyers need assurances (on paper) that sellers will remain after their “earn-out.” Buyers don’t want to buy a firm and lose key executives once the earn-out is complete.
The corporate M&A advisor — whether representing the buyer or the seller — should play a key role in managing the process. The advisor can work with both parties, review and exchange information and liaise with CPA firms and attorneys. The advisor should not be a “broker,” but a trusted source that both sides can rely on to do the right thing.
Once the preliminaries are finished it’s time to move on to the main event. But, unlike a heavyweight bout, the idea here is that both buyer and seller win, unbowed and unbruised.
Tying the knot
Once a wedding is imminent, there are several important elements to making sure the M&A process is above board and the details are airtight. These include:
The offer/term sheet. Within 60 days of the initial meeting, the prospective buyer should present to the seller a term sheet outlining how they see the terms of the offer, including the down payment, the earn-out model and the employment security of key executives.
Period of Exclusivity: From the date the term sheet is signed, there is a period of exclusivity — or, in Wall Street parlance, “quiet period” — in which the seller is prohibited from talking to other prospective buyers (typically 60 to 120 days)
Letter of intent. The “LOI” puts in writing the basic terms of the transaction, ranging from the proposed structure of the transaction to the pricing model. It also includes important elements of a transaction such as timing, no-shop clause and target close date.
Due diligence. This is the coin of the realm within the PR M&A process, and both buyers and sellers may be disappointed down the road if they give due diligence short shrift. Aside from covering legal and financial issues, “buyer due diligence” includes critical areas such as pricing, depth of relationship with clients, vendors and makeup of the staff. “Seller due diligence” also includes legal and financial components, in addition to how the buyer intends to integrate the seller firm into the parent organization. Key questions for the seller: How long will the entity retain the seller name and brand? What is the strategic philosophy of the buyer?
Contract/closing. Since neither buyer nor seller wants a surprise, the contact review may involve several drafts. Once it’s fully baked, a closing is finalized, and staffers and main clients are informed regarding the transaction.
Both sides have a vested interest in making the M&A transaction a success and not having what could be several months of hard work turn to waste.
A “breakup fee” can be proffered if a seller or buyer backs out of a deal. But that, in a sense, means it’s back to the drawing board for both sides of the table.
In the high-pressured environment of PR — in which every second of the day is budgeted — both buyer and seller should avoid a “breakup fee” as best they can.
Rick Gould, CPA, J.D., is managing partner of Gould+Partners and author of “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger or Acquisition.” He can be reached at firstname.lastname@example.org and/or 212/896-1909.