M&A 101 – back to basics

22.1.2020

Being a new year, we thought it would be timely to provide a refresher on some key M&A concepts. Of course, there are a long list of things that go into making a successful transaction, but the following are some of the most important tips from our team to consider before entering a transaction process.

1.Value is in the eye of the beholder

Every company has a “fundamental value”, that is, the present value of future cash flows of the company, regardless of current activity in that company’s sector. However, what someone is willing to pay for that asset (i.e. the “market value”), may depart significantly – positively or negatively – from that fundamental value. This depends on a range of factors and will be different for every investor depending on what they can do with that asset. As a seller it’s important to understand what your business offers each investor, and to proactively position your business to communicate this value.

2. It takes time and resources

An M&A transaction can take a long period of time from inception through deal completion; a period of 4 to 6 months is not uncommon, as discussed further here, with some deals extending much further. There are some things you can’t control, but the most important thing a business owner can do to promote a speedy timeline is to be well prepared. High quality information helps investors understand the opportunities and risks, and the ability to respond quickly to questions is key to building investor confidence.

3. Due Diligence can be painful

Your business information will be pulled apart and scrutinised by the investor, and the process will be painful at times. The aim of Due Diligence is to confirm high level information previously provided to the investor, and start the process of post-transaction planning as discussed further here. At times it will feel like investors and advisors are asking irrelevant questions, and that they are calling your baby ugly. As well as being well prepared, it’s important to remember this is normal, and not to take the questions and the process personally.

4. Have your financial reporting in order ahead of time

As part of due diligence, the investor will want to make sure your numbers stack up. Should the numbers start to “move” during this period (either historic or forecast numbers), the investor will lose some faith in the other information provided, and the valuation or deal terms may start to slide. If your financial reporting is not sophisticated, it may be worth bringing in an interim CFO to ensure your numbers are in order. This will not only build confidence but will likely streamline the due diligence process.

5. Take time to get the Term Sheet right

Properly negotiating the term sheet is critical (also known as letter of intent (LOI) or non-binding indicative offer (NBIO)). Investors sometimes present a term sheet that lacks detail about key deal terms, hoping to get something signed quickly and move onto Due Diligence. However, it’s important to clarify any “show stoppers” up-front, before too much time is invested in the process. A well drafted term sheet will also make the subsequent drafting of formal documents more efficient.

6. Focus on the bottom line, not the headline price

At the end of the day, the only number that matters to a seller is what they end up with at the bottom line (after any purchase price adjustments and tax). It’s important to understand the objectives of the investor, and if there are certain elements of the purchase price that they’re more flexible on than others. This can include net debt and working capital adjustments, timing of payments, and structuring for tax purposes.

7. Negotiation dynamics

All M&A negotiations require compromise (from both sides). It is critical to understand where the value lies for each investor, and what are the critical take-aways for the seller (both financial and non-financial). What issues are worth fighting for? How can you best leverage a competitive process? Understanding these dynamics are critical to optimally navigating the sales process.

8. Specialist advisors & lawyers are critical

Specialist advisors (M&A and tax) and lawyers (M&A) are critical for a successful transaction. The transaction process can be complex and very fast-paced. It is important to know what is “normal” and what’s worth fighting for in a transaction. M&A advisors and lawyers have been through this the process countless times and understand where the critical issues can arise and how to overcome them (discussed further here). Not using an appropriate advisor can introduce an unnecessary risk to the process. It’s also important to engage advisors and lawyers who are commercial, communicate well, and are skilled negotiators.

Above all, preparation is key. All the best for a prosperous 2020 from the team at InterFinancial.

Authors: Michael Kakanis & Mark Steinhardt

30.7.2025

Sector dashboards July 2025

Our monthly sector dashboards are out! Our dashboards look at the valuation multiples across seven key sectors, each made up of a number of subsectors. The data takes into account the sale prices of similar companies based on; products, end markets, services, assets classes or other characteristics. The publications include all companies listed on the […]

Read more
30.7.2025

InterFinancial advises Premise on its sale to Amey

Premise, a full-service consultancy that provides tailored solutions in engineering, planning, surveying, project management architecture, agricultural and environmental science, was sold to Amey, a leading provider of full life-cycle engineering, operations and decarbonisation solutions, for transport infrastructure and complex facilities  Premise Engineering is a multidisciplinary engineering and consulting firm founded in 2016 in Brisbane, Queensland, […]

Read more
30.7.2025

Mapping the PE landscape: Types of Private Equity in Australia (Part 2)

In our previous article, we explored the different types of private equity in Australia and the role each plays in helping businesses grow, transform, or turn around. These include Venture Capital, Growth Equity, Buyouts and Turnarounds.   This month, we look at some of the more emerging parts of the PE landscape.   Family offices and long-term […]

Read more
30.7.2025

From resources to results: Harnessing innovation in iron ore and renewable energy to accelerate Australia’s leadership in green iron and steel

Australia’s green iron opportunity: A global industrial transformation Australia stands at the threshold of a transformative opportunity that could redefine its role in the global economy. Australia has the resources, technology, and trade relationships needed to become a global leader in green iron production, but only if decisive policy action is taken now.  Green iron […]

Read more
30.7.2025

Employee Q&A: Luke Harwood

Whether he’s advising on multimillion-dollar cross-border acquisitions or helping an early-stage AI venture find its footing, Luke Harwood knows how to turn challenges into practical opportunities. With a career that’s taken him from infrastructure deals in Abu Dhabi to leading Telstra’s tech and innovation functions across China, the USA and Australia, Luke brings a unique […]

Read more
25.6.2025

Sector dashboards June 2025

Our monthly sector dashboards are out! Our dashboards look at the valuation multiples across seven key sectors, each made up of a number of subsectors. The data takes into account the sale prices of similar companies based on; products, end markets, services, assets classes or other characteristics. The publications include all companies listed on the […]

Read more
25.6.2025

Mapping the PE landscape: Types of Private Equity in Australia (Part 1)

Australia’s private equity (PE) sector is a dynamic and multifaceted market that supports companies through all stages of growth, from fledgling startups to mature enterprises. While it’s common to categorise private equity by business stage (early, growth, mature), several other key factors will help decide what may be the most practical private equity investor, these […]

Read more
25.6.2025

China’s 2025 Outbound Investment Outlook

The global M&A market has been in decline since 2022, following a record-setting surge in 2021. The downturn was primarily driven by rising interest rates, economic uncertainty, and geopolitical tensions. China’s M&A market is no exception. Since the COVID-19 pandemic, the Chinese economy has faced unprecedented challenges, including slowed GDP growth, weak consumer spending, an […]

Read more
25.6.2025

Employee Q&A: Natalie Knight

She’s not one to chase the spotlight. But for the past nine years, Natalie Knight has been a quiet force behind the scenes at InterFinancial. As our Administration Officer, she brings structure, calm and a sense of order to the everyday chaos that comes with managing a busy advisory firm.   From coordinating packed calendars, […]

Read more