On the buy side, analysts are laser-focused on avoiding major mistakes and mitigating as much risk as possible. At the same time, boards of directors — especially when they find themselves on the sell side — are looking to ensure that stockholders maximize their return on investment. All while setting strategy, ensuring good governance, setting a baseline for corporate performance in the future and, you guessed it, overseeing risk management.
Both parties are deeply engaged in risk assessment and mitigation, and nowhere is that more vital or more apparent than during M&A deal. When the twain meet, you’ll be ready — do your own diligence by running yourself and your team through these seven questions before they inevitably pop up. Because the last thing you want during a high-stakes M&A meeting is to be caught off guard.
Why Are You Selling?
Let’s start with the obvious. This buy-side question might sound like small talk, but it’s actually the foundational query of the whole deal, the seed from which every other question will stem. Buyers will want to know the board’s motivation for selling, they’ll want to hear it from a variety of angles, and they’ll want to take confidence from those motivating factors.
Increasing momentum or selling as a built-in part of the long-term business plan, for instance, might inspire some healthy confidence; worries over market stagnation or budget problems might not be quite as inspiring answers.
What’s the Customer Concentration?
What buy-side analysts are looking for here is assurance for the long-term outlook. They’re thinking well beyond the sale and way after the integration. On a granular level, what they often really want to find out from this question is if a significant portion of the company’s revenue is swayed by a small portion of select customers or clients. And if so, they want to know if there’s room for growth there, with specific and actionable ways that growth can occur. (You can learn more about this by checking out our guide to customer due diligence.)
What’s the Outlook for this Market?
The key here is providing genuine feedback and insight not just on growth opportunities, but on overarching industry trends and how everything from social to environmental to technological factors might affect the future outlook. Focus on how these factors affect the industry’s key attributes, and why customers might choose your company over others as these trends evolve. Know, and be prepared to explain, customer perspectives on your company and how it stacks up to its competition.
Is There Healthy Opportunity for Returns?
We hope your board is expecting this one, but here as in virtually any question that arises during deals, specificity is key. Buyers will especially want to know if returns depend heavily on synergies, and if that’s the case, they’ll want a timeframe on those returns. Be upfront and confident with predicted revenue, backing up your projections with hard data whenever and wherever you can, and let them know if an acquisition might affect future expansion options, too.
What Are the Biggest Risks in This Transaction?
Remember what we said about risk mitigation? It’s a priority for buyer-side analysts, and while it hopefully won’t be the first or second question you hear, it’s a key strategic question for boards of directors. What most analysts want to hear is what companies like Ernst & Young LLP call “integrated diligence,” or a holistic view of the company’s entire risk profile.
That means they’ll want to know about cash flow sustainability, operational resilience, and threats to growth potential from the commercial side down to cybersecurity risks during integration and well beyond. While it may sound negative or even invasive, integrated diligence enables buyers to do more than assess the riskiest areas of your business, it empowers them to pinpoint the areas with the most potential for return.
Are We Facing Any Competition?
Not every buy-side team will be bold enough to ask this one, but it pays to be prepared for it just in case. Potential buyers almost always want to know if your board is talking to any other companies about mergers or acquisitions, and sometimes, they’ll ask you about it outright. Be prepared to dish (as much as you’re legally and strategically able) on competing bidders, as buyers will be especially interested in how competition might influence their assumed purchase price.
Where Do We Start?
This question is almost certainly a good sign for a board of directors on the sell side of an M&A deal, but it’s not quite time for a victory lap just yet. Like virtually all questions from the buy-side, it’s another strategic question for the board of directors. As banal as it may seem, it’s often more than just a nicety.
Here, it’s best to outline specific starting points, and concrete examples of your company’s willingness and preparedness. For an acquirer, key starting points are often areas of potential improvement, such as synergistic savings or ways that the merger or acquisition can immediately impact factors like customer retention and wallet share.
Here’s one thing that won’t be in question: the security of your financial records and sensitive files in your virtual due diligence data room. CapLinked’s got your back on that one.
Dan is a Dallas-based small business owner, media professional and freelance writer of more than 12 years. In that time, he’s been lucky enough to collaborate with business brands like The Motley Fool, Office Depot and Fortune as well as tech companies such as Samsung, Verizon, Vizio, Sony and beyond.
Sources
Investopedia – Buy-Side vs. Sell-Side Analysts: What’s the Difference?
Stout – The Role of the Board in Mergers & Acquisitions
Isosceles – Important Questions to Ask Before Making an Acquisition
EY – Ask These M&A Due Diligence Questions Before Signing a Deal
Strategex – 10 Questions to Ask Every Acquisition Target
Charlotte Business Journal – 7 Key Questions Buyers Should Ask Before Acquiring a Business
