Focusing on IT due diligence allows for the acquiring organization to gather information on potential synergies, identify any security concerns and evaluate IT staff and structures. A comprehensive and well-managed process should: Evaluate overall IT strategy effectiveness, including processes, project portfolio, support structure, and alignment to business goals. Identify operational improvements, synergies or cost savings opportunities such as rightsizing the IT support model and vendor contracts.
Assess capability to integrate core business processes and systems e. Assess the security and controls framework to minimize exposure to costly litigation for data exposure or theft.
Evaluate the health of IT infrastructure to determine ability to scale, integrate, or maintain current operational demands. Identify single points of failure that require mitigation planning. Identify hidden or buried IT costs resulting in a higher than expected operating model. Identify deferred or unplanned software license costs, which may create post-transaction investment. Chapter 15 gives you the lowdown on stock and asset deals.
Speak to your financial advisor about your specific tax situation. The distinction has to do with size, most often revenues and profits. Then you have the issue of critical mass.
Critical mass is a subjective term, and it simply means size: Does the company have enough employees, revenues, management depth, clients, and so on to survive a downturn? Smaller businesses most often do not have enough critical mass to be of interest to acquirers.
Capital providers who may be able to help finance acquisitions will have little or no interest, too. Who may be interested in acquiring it?
Table defines these companies at a glance; the following sections delve into more detail. Why are sole proprietorships of little or no interest to an acquirer? Making dozens of tiny acquisitions is just not worth the time or expense. These businesses are larger consulting practices, multiunit independent retail companies, construction firms, and so on. Although PE funds and strategic acquirers are usually not interested in smaller companies, they occasionally make exceptions if a company has a unique technology or process.
In these cases, the acquirer can take that technology or process and deploy it across a much larger enterprise, thus rapidly creating value. These companies typically have enough critical mass to be of interest to both strategic acquirers and PE funds. Although transactions are typically very large, the fact is very few companies are large. The middle and lower middle markets are far larger.
Firms in this category typically use bulge bracket investment banks. These entities are the largest of most sophisticated of investment banks. They also charge enormous fees. Public offerings of securities typically involve multiple firms, and the largest firms, or managers of the offering, want their names to the left, away from the names of the smaller firms.
The placement of the names looks as if they were bulging, hence the moniker. But never fear; in this chapter, I break down the early considerations for selling or buying a company so that they feel less intimidating.
They overlook the quite often stunning wealth that company ownership can create. This section explores the reasons an owner may want to sell his business. Trying to time the market — that is to say, trying to set your transaction to close when the economy is roaring — rarely works.
Instead of trying to guess when Buyers are going to pay high prices, Sellers should focus on running the business, increasing sales, controlling costs, and improving profits. Retirement Retirement is one of the top reasons business owners decide to sell their businesses. The older some people get, the more they hear the siren call of Florida or Arizona. Or the Carolinas. When an owner is considering moving on to the next phase of life, that phase of life often is fueled by the proceeds from selling his business.
At home? In college? On their own? Are you still supporting them, or are they financially independent? Lifestyle: What do you want to do?
Get involved with charities? Spend time with the grandkids? How much vacation time are you taking each year? Finances: Do you have enough saved to fund the lifestyle you want? Have you actually figured out that number with a professional planner, or are you just guessing? As far as funding retirement, business owners usually have a rough, back-of-the-envelope number in their heads. Sit down with a qualified wealth manager and talk about exactly what you want to do in retirement. Yeah, I know, that sounds like one of those pharmaceutical commercials, but in all seriousness, are you still the go-getter who originally built the business?
Buyer, you can ask a reluctant Seller if she has planned her retirement with a qualified professional. Getting an owner to create a concrete retirement plan with an advisor can be a way to bridge a valuation gap see Chapters 12 and 21 for more on valuation and bridging valuation gaps.
They may not want to retire, but they also may not want to run the same company anymore. This situation happens for a few reasons: Capital needs: A growing company, even a highly profitable company, usually requires more capital than the business generates from operating cash flow. Why is that? For most companies, cash flow lags behind revenue recognition, and revenue recognition lags behind expenditures required to support that revenue.
A growth company that constantly needs to reinvest in the business new employees, equipment and supplies, and so on essentially has the capital needs of a much larger enterprise. The segue refers to a natural phase during the life cycle of a company: the gradual shift from a entrepreneurial company to professional company. The company, by necessity, has to shift from a centralized, seat-of-the-pants, CEO-is-in-on-every-decision organism into a diverse, decentralized, and highly structured entity.
At this point, bringing in a larger, professionally run entity may be the best way for the company to continue its upward growth. Chairman of the bored: The major battles are won, the company is on a great footing, and everyone knows his job and does it well. Believe it or not, many business owners, especially those of the entrepreneurial stripe, grow exceedingly bored with a well-run company. In this situation, both the company and the owner may be better off if another, more-engaged entity takes over.
Other times, the acquired company suffers as a result of bad decisions by Buyer. Getting rid of the sales staff often has the effect of — surprise, surprise — reducing revenue. As the acquired company declines because of these bad decisions, it may start to lose money to the extent that Buyer eventually seeks to cut its losses by divesting the acquisition.
An overleveraged Buyer: Sometimes Buyer borrows too much money to finance the acquisition, and the slightest hiccup in the economy can impair the acquired firm, thus forcing Buyer to sell off the acquired company. Buyer has to sell the acquisition often at a bargain- basement price , or worse, the creditors may end up taking over the acquired business, resulting in a total loss for Buyer.
A money-losing division: The decision to sell a weak division is often very easy and straightforward, especially if the rest of the company is strong. Losses can drag down an otherwise-strong company, so instead of throwing good money after bad, a company may simply spin off a money-losing division to get rid of it and its offending losses.
A lack of synergy: Sometimes one plus one equals three. For example, say a marketing services company starts up a janitorial services division.
Most likely, the parent company will discover two divisions in disparate markets are spreading the company too thin. The best course of action may be to sell off one of the offending divisions and focus on the core strengths of the company. In the hands of the correct owner, divested divisions often rebound quickly.
The industry is changing The decision to sell a company in the face of a changing competitive landscape is often a very smart move. When people wanted to forecast the future in days of old, they would observe the flight patterns of birds. Timing the market can be a dangerous pursuit, but if a business owner believes the future involves technology developments that will render his company a has-been, or worse, obsolete, he may be ready to exit the industry by selling the business.
For Buyers, changes in the industry are always a risk. Just ask any newspaper about how the Internet changed the way news is disseminated. A company that is suffering from poor management decisions but remains a going concern liquidation is not on the horizon may make a suitable acquisition for an acquirer well versed in turnaround work.
On the other end of the spectrum, a company that is no longer a viable going concern should probably be liquidated by an orderly bankruptcy. Although the reasons a company becomes troubled are virtually limitless, you can pool them into three distinct buckets: Changes in the macro-economy: A general downturn in the economy, much like the one experienced in the latter years of the first decade of the new millennium, often has a chilling effect on many companies, including those that are fundamentally sound.
An otherwise healthy company that has been beaten up by the market suffered declining revenues and profits is often a great acquisition for a savvy acquirer. Managerial mistakes: Companies can suffer a downturn at the hands of poor management. Is this company worth the trouble? If profits are down perhaps even greatly down but the target is still break-even or better, a Buyer will be able to ride out the storm because the acquisition is not burning cash and wait for the economy to pick up.
Is the target continuing on a downward slope, or does it appear to be on the rebound? If the worst is behind the company, a Buyer will be in good position to pick up a bargain. Even if a target is suffering losses, that company may still have a great deal of value if revenues are large enough.
Does the company have a recognizable brand name or other intangible qualities? These factors are notoriously difficult assets to value, but if a company has a recognizable name within in an industry or has done a good job of differentiating itself from the pack, that intangible may have value for the right Buyer. The good news is a company that has made managerial errors similar to those listed here may make a great pickup for the smart acquirer.
The bad news is a company suffering through a series of near-fatal managerial mistakes may have burned bridges with its customers or suppliers. Consider yourself warned! Changes in customer preferences: In the world of troubled companies, those affected by this situation are the most troubled of them all. Think of the proverbial story about buggy whip manufacturers in the wake of the advent of the automobile.
The word for this phenomenon is disintermediation. You may need to consider accepting a deal below your dream price because holding out for a better, future deal is risky. That better deal may never materialize, and the clock is ticking on the longevity of a troubled company. The following sections explore some of the common reasons a business owner may want to sell a piece of the company. Needing capital for growth A growing company often needs more cash than it can generate from operations.
Outside investors come in two basic flavors, control and non-control: Control investment: A control investment simply means the investor has control of the company. This situation occurs when an investor, often a venture capital or private equity fund, invests money in exchange for stock in the company.
Well, maybe stock, maybe something else. This kind of investment makes the most sense when the company has publicly traded stock and the stock has a large-enough average daily volume to make the investment liquid. This way, if the company goes under, the investor gets repaid before equity holders, but she also has the option to covert her debt into to stock in the event the company goes public.
Why structure the deal this way? In the world of accounting, debt holders are higher up on the food chain that stock owners. On the other hand, if the company is wildly successful, turning the debt into stock can be quite lucrative. As you may guess, Sellers tend to prefer the non-control investments, while Buyers prefer control investments.
The control investor has greater recourse to change management and affect the direction of the company. The non-control investor simply goes along for the ride, with little or no recourse to exit the investment.
Diversifying assets: Take some chips off the table Many business owners have nearly all their wealth tied up in their companies, so their finances are in serious jeopardy if the company fails. Selling a piece of the company to an investor allows an owner to create liquidity in an otherwise illiquid holding. This maneuver is called a recap short for recapitalization.
In other words, the investor may also be willing to pony up more money to invest in the business or pay for acquisitions.
Bringing in an outside investor to buy out a partner Partners are a great way to build a business: One person deals with one area, such as sales, and the other handles another say, the back-office administration and accounting. The downside to having partners is that they sometimes stop seeing eye to eye, and one of them needs to leave the business.
For a closely held business, this situation can be a problem; the partner who wants to stay may not have the money to buy out the partner who wants to leave. Bringing in an outside investor is a way to solve this problem. This section tips you off to some areas to look at before you sell or even decide to sell so that you can avoid common pitfalls. If Seller is unable to institute operational improvements prior to a sale process, she should inform Buyer where he can make additional improvements.
At a minimum, Buyer will view the suggested list of improvements as a sign of goodwill, thus increasing the odds of a successful closing.
Clean up the balance sheet One of the biggest obstacles to getting a deal done is a messy balance sheet. Repeat after me: Accounting is your friend. One of the key figures on a balance sheet is the current ratio, or the difference between current assets and current liabilities. Anything labeled current on the balance sheet is essentially the same thing as cash.
So what are these cash or almost-cash items? To fix up your balance sheet in preparation for a sale, follow these steps: 1. Collect your receivables. Buyers check to see whether Sellers are diligent about this collection at least, they should. If the terms are net 30 that is, money is due within 30 days , as a Seller you should be collecting those receivables within that time frame.
Slow collections on receivables may mean Buyer has to obtain a revolver loan, a loan designed to help companies with fluctuations in cash flow. Buyer will likely assume your working capital, namely receivables and payables, as part of a transaction.
Buyer will probably want all the receivables but may make you grant a discount on overdue accounts. Make sure inventory is all saleable. If you have obsolete or slow-moving inventory, talk to your accountant about how best to write off this inventory. If you want more information about the wonderful world of accounting, check out Accounting For Dummies, 4th Edition, by John A.
Tracy, CPA Wiley. Or you can talk to your accountant. Pay off debt Another hurdle in selling a company is taking care of your long-term debt. Although Buyer can assume the long-term debt of an acquired company, Buyer will probably simply deduct the amount of debt from the proceeds of the sale.
For all practical purposes, if Buyer assumes the debt, Seller is retiring that debt at closing. Ask whether the lender would accept a percentage of the amount owed 60, 70, 80, or whatever within a certain time period such as 45 days and then consider the debt paid in full if you meet those new terms. Tell the lender that if you fail to meet the terms of this new agreement, your deal reverts to the original percent. If the lender agrees to this gambit, be sure to memorialize the agreement in writing.
These distinctions are important because they affect the taxation of the business. An LLC and an S-corporation allow for a single layer of taxation, which means the government taxes a sale of assets once, most likely at the prevailing capital gains rate.
The Seller of a C-corporation, on the other hand, gets hit with two layers of taxation. First, she pays on the proceeds of the sale at the corporation level, and then when the remainder of those proceeds is distributed to the shareholders, the shareholders also pay tax, most likely at the capital gains rate.
This double-whammy means the shareholders of a C-corporation many be looking at receiving less than 50 percent of the gross proceeds. Sellers should speak with their tax advisors prior to pursuing a business sale and set a plan well in advance of the decision to sell.
But starting early enough is key: When converting from a C- corporation to an S-corporation, you may need a full decade before the full benefit accrues. An able advisor can provide you with a structure for a deal that minimizes your tax burden.
One way is to reduce and eliminate wasteful expenditures, and because the largest expense of most businesses is personnel, you may have to make some difficult decisions. Make a determination of what personnel you need to run the business and simply execute on that decision. If some staffers are on the edge, give them a chance to improve.
Set realistic goals and give them the tools to succeed. My experience has been people respond to this challenge in one of two ways: Either they step up and improve their performance to a tolerable level or they quit. Either option is a suitable outcome. The profitability of your company improves when revenues increase and expenses stay the same. Set the stage for long-term success. Closely held businesses often utilize a different version, colloquially called FAAP, or family accepted accounting principles.
If the business is audited by the IRS, those expenses may be disallowed and the owners may face penalties. In addition to owner expenses, you may have other add backs to account for, including one-time expenses such as severance, a lawsuit settlement, or a once-in-a- lifetime capital investment for example, buying equipment with an extremely long useful life. The rule of thumb when analyzing whether an expense is one time is simple: What are the odds of this expense happening again?
Owner, make thyself expendable Companies with the greatest value to Buyers are those companies where ownership is completely, totally, and utterly replaceable. Heck, the thought of being utterly replaceable is spiky for almost anybody!
Here are a couple ways you can make yourself replaceable as an owner: Train other managers to run the company without you. Empower them to make decisions, and trust them to work independently and make their own decisions. Design and implement systems that remove any ad hoc decision- making systems. Exploring Typical Reasons to Acquire Since time immemorial, mankind has grown through acquisitions.
Granted, those early acquisitions were really conquests, but in recent years, empire-building has focused on acquiring companies. As I note in Chapter 1, an acquisition allows a company to skip the growth stage and buy existing sales and profits. For this reason and those in the following sections, a company may choose to buy other companies instead of relying on organic growth. Make more money Make no mistake: The pursuit of money is a main reason for making acquisitions.
Making more money is a noble pursuit. Gain access to new products and new markets Acquiring a company with a similar product allows the acquirer to increase its share of the market. Being a larger player in an industry can have benefits, such as the ability to negotiate better prices or terms from suppliers and vendors, increase awareness to customers larger companies typically are better known than small companies , and raise prices.
Implement vertical integration Vertical integration means buying a supplier or an end user of your product. An ice cream manufacturer that buys a dairy farm is vertically integrated. The downside is that the acquired company may service other competitors. If that dairy farm also supplies other ice cream manufacturers, those competitors may balk at buying from their rival.
This situation is a channel conflict. And you thought that was when you and your spouse argue over what program to watch! Economies of scale simply means that as a company grows larger, the fixed expenses stay the same or increase far more slowly than the top line revenue. Therefore, the larger the company becomes, the more profitable it becomes. If Company A is killing a Company B in the marketplace, Company B may determine simply buying Company A is the best way to make the competition go away.
Successfully acquiring other companies takes some planning and preparation; I cover the vital considerations in this section. Does the target need to have a minimum profitability level, and if so, what is it? Are you willing to consider acquiring a money-losing operation? Should the acquired company be a product extension or a new product? Should the acquisition allow you to vertically integrate? These are only a few of the possible questions to consider when choosing a potential acquisition.
No, really, be honest. How is it? Companies able to successfully do deals have strong cash positions and little or no debt. Working capital should be positive, and the current ration should be at or above the industry norm.
Have the money lined up Have your sources of cash ready to go before you begin the acquisition process. Also, reputations travel because people talk. A Buyer unable to close a deal because of a lack of forethought sullies its reputation. Following this chain of command at all times helps the acquisition process go smoothly and efficiently by eliminating poor communication and duplicate steps.
All requests and questions go through this one person to prevent poor communication, duplicated steps, and a frustrated Seller. Buying a Company from a PE Firm In some situations, you may consider acquiring a company from a private equity PE firm, a pool of money that buys companies with the intention of reselling them later for a sizable profit.
PE firms can be very motivated Sellers. After all, buying and selling companies is their industry. Head to Chapter 4 for the lowdown on PE firms. The following sections offer some considerations to keep in mind as you look at dealing with a PE firm. PE firms also hear the constant ticking of the internal rate of return IRR , one of the key metrics they like to flaunt when raising capital. Does the company fit with your goals?
This question is pretty basic, of course, but as Buyer, take care when evaluating the fit of a portfolio company with your company. Decide whether a potential earnings hit matters to your company. Consider also whether the acquired company will eventually be able to generate higher earnings for the entire firm if earnings take an initial hit.
Is the company actually an integrated set of other companies? PE firms often cobble together multiple companies into one integrated firm. This setup is perfectly fine, and PE firms often do a wonderful job of integrating, but you need to be wary of just how well organized formerly disparate companies have been integrated. How long has an integrated company been operating since the last acquisition? Waiting awhile at least a year to make sure these formerly independent companies are operating as a cohesive unit is a good idea.
But believe it or not, the buying and selling of companies has a clearly defined process. To be a successful Buyer or Seller, you need to understand how that process works so that you can think many steps ahead and plan accordingly — just like a chess game, but without the checkered board.
I also look at the constantly changing power balance between Buyer and Seller in a deal and provide suggestions on preserving as much power as possible in less-than-ideal circumstances. Take Note! A good deal of planning occurs before Buyer or Seller can undertake the process of buying or selling a business, let alone successfully close a deal. The key points are to disseminate information in a timely, orderly, and appropriate manner and to close mutually beneficial deals.
To keep the process moving along, Seller needs to create a line in the sand by instilling due dates. The first due date will be for indications of interest. Buyers will almost always be late in submitting their indications, so Sellers are wise to allow for a little padding of time. Step 1: Compile a target list If ownership decides to sell or make acquisitions following discussions with advisors, family, friends, and management, the process begins by identifying prospective Buyers or Sellers.
The key word here is prospective; these businesses may or may not be interested in doing a deal. You begin to make that determination in the following steps. Chapter 6 provides a much deeper dive into the process of researching, compiling, and culling a list of targets. For a successful acquisition or sale campaign, I strongly recommend having at least 75 prospects, and preferably more than Having a small universe of prospects simply lowers the odds of finding the right deal, but a list of many more than targets gets untenable.
Some people prefer a passive approach e-mails or letters , while others prefer a more assertive approach phone calls. I prefer making calls when contacting Buyers believe me, most of them are literally sitting by the phone waiting for a Seller to call. Contacting Sellers is far trickier. Check out Chapter 6 for more on contacting Buyers and Sellers. Avoid hyperbole at all costs. Step 3: Send or receive a teaser or executive summary If Buyer wants to learn more about the company for sale, Seller will forward a teaser to Buyer.
The teaser sometimes called the blind teaser is an anonymous document that provides just enough nonconfidential information to pique the interest of Buyer.
As the name implies, the teaser is designed to tease Buyer into a frenzied state of wanting to know more. These documents are the doorway that leads to the other steps in the process.
Chapter 8 provides a lot more information on these documents. Step 4: Execute a confidentiality agreement If, after reading the teaser discussed in the preceding section , Buyer is interested in learning more about Seller, the two parties often execute a confidentiality agreement CA.
Chapter 7 offers a detailed look at all the ins and outs of confidentiality. Step 5: Send or review the confidential information memorandum If the confidentiality issue in the preceding section is socked away and settled, Seller provides Buyer with a boatload of information, usually in the form of a book known as an offering document, deal book, or some similar title. The offering document provides a huge amount of informational about Seller: financials, customer info, employee info, products, marketing, operations, legal, real estate and fixed assets, and more.
The offering document should provide sufficient information for Buyer to make an initial offer. I cover offering documents further in Chapter 8. Step 6: Solicit or submit an indication of interest If the Buyer reviews the offering document see the preceding section and is interested in pursuing a deal, Buyer indicates that interest in the aptly named indication of interest IOI. An IOI provides a valuation range not a specific price Buyer would consider paying for the company, as well as some other basic info estimated closing date, source of funds, basic composition of the purchase price, and so on.
See Chapter 9 for more. Seller conducts the meeting, which provides a financial update as well as updates to any other issues that may be pertinent for Buyer, such as new customers, lost customers, new hires, new product launches, litigation, and so on. Chapter 10 gives you the lowdown on these meetings. The LOI is a nonbinding document that forms the basis of the final deal. It contains a specific purchase price rather than a range and provides the steps needed to close the deal.
The LOI usually includes an exclusivity clause, which means Seller can no longer negotiate with other Buyers. Flip to Chapter 13 for details on making and receiving offers. Exclusivity is an enormous issue! Grant it carefully. These days, the due diligence info is usually provided in a secure, online data room. Step Draft the purchase agreement If due diligence see the preceding section is progressing reasonably well, the parties draft a purchase agreement.
The lawyers for Buyer and Seller work out the details of the purchase agreement; see Chapter 15 for more. When drafting the purchase agreement, make sure the lawyers hammer out the legal details and only the legal details.
All of the business particulars should be handled by the investment bankers. Lawyers should never, ever, upon pain of death, negotiate a single business term! Business and legal issues are two separate worlds and each should be handled by the appropriate party. After all the documents are signed, the money is wired to the appropriate parties, and the deal is done!
Chapter 16 provides more info on closing. See Chapters 17 and 18 for more on how to do just that. One of the benefits of successful deal-making is the money, the wealth creation, and the self- actualization that comes from success.
But more than that, successfully doing deals means creating wealth and opportunities for others. A consummate deal-maker expands the economy as she improves her personal balance sheet. The best deals, where both sides make money, come from the value creation of hard work and ingenuity and the hardnosed ability to negotiate mutually beneficial deals.
An auction is a business sale process where a group of Buyers makes their final and best bids and the company goes to the best bid. So what does best bid mean? For example, say Seller is examining two bids. Which is the better deal?
But depending on the situation, the second bid, although lower, may make more sense; perhaps Seller is willing to forgo a higher potential price for the certainty of more cash today.
A negotiated sale still has elements of an auction numerous participants making bids , but a negotiated sale involves a lot more hand-holding of the Seller. Which process is better depends on the situation.
An auction usually works best for larger, well-known companies. In these cases, Buyer may be willing to pay a premium for a famous company. A negotiated sale works best for smaller companies or companies with losses or thin profits. Some Buyers shy away from auctions. Although an auction can be a great way to sell a company, the auction may result in an unintended consequence: no bids! Anyone who has worked a sales job has probably dreamed about being on the other side: the buyer, the person who seemingly has all the power.
Buyers, after all, are the ones who pick and choose. They get to interview numerous possible vendors and pick the one that delivers the best combination of price, quality, and, often, the intangibles of an interpersonal connection. But in mergers and acquisitions, that scenario gets flipped on its head. The following sections look at each of these positions.
Simply put, quality companies with critical mass are in demand. For more on what that means, see the nearby sidebar. Suffice it to say that after a company gets above a certain revenue level and especially a certain profit level, Buyers of all shapes and sizes start chasing it.
Selling is typically easier than trying to make acquisitions, but selling a company is fraught with challenges, difficulties, ups and downs, and sheer white-knuckle poker playing. For more on actually navigating a sale, check out Chapter Although definitions vary from Buyer to Buyer, critical mass simply means a company that has size, scale, and scope. They have more company to go around! An unprofitable company with enough revenue may even have value to the right Buyer.
Companies with large-enough profits will always be in vogue with Buyers. Selling products or services into the executive ranks is often a coveted level of access, and companies that lack that sophistication may be willing to pay a premium for it.
In fact, a solid brand and reputation can help an otherwise troubled company generate a good price during a sale. Owners of companies are bombarded on an almost daily basis from all sorts of Buyers. Buyers are a dime a dozen. For tips on how to better entice an otherwise uninterested business owner, see Chapter 6. Understandably, the owners and executives of these companies are extremely reluctant to talk to a competitor, let alone give up sensitive information such as revenues, profits, customer data, sales compensation, and the like.
This swing in motivation, plus a little poker-esque bluffing and tell-reading, means the power balance in a deal is constantly shifting. Looking at the factors of motivation The most motivated party in a deal is the one most likely to cede power to the other side to make sure the deal goes through. But what exactly provides this motivation?
Several factors: Interest: The side that has the most interest in doing a deal probably has the least power because that party will be most willing to compromise in order to get a deal done. Desperation often indicates an impending business failure, thus greatly increasing the willingness of the owner to accept a deal, any deal. Boredom: A business owner who is bored and wants to move on to something else can unwittingly become a highly motivated Seller. Broadcasting that boredom to potential Buyers puts those Buyers in a huge power position.
Time: Time is the wild card in the motivation game. A Seller who wants or needs to do a deal right now will likely cede power to Buyer. Conversely, the longer the process takes, the more the power may flow back to Seller because Buyer becomes the one who has invested time and money and increasingly needs to get the deal across the finish line. Buyer and Seller have to retain advisers. Buyers are most often guilty of overspending. The more money a side spends during the process, the greater the odds are that that side will want to get a deal, any deal, across the finish line.
No one wants to spend money and have nothing to show for it. Understanding who has power Typically, Seller has a lot of power early in the process. As the party being courted, Seller controls whether meetings occur and whether information is exchanged. One way Buyers can get more power early in the process is by submitting a pre- emptive bid, making a bid before other Buyers have made their bids and knocking out all other possible suitors.
Eliminating competition is a boon for any Buyer and puts Seller in a vulnerable position. The section also describes how investors have won organizational support for engaging in this work and the importance of developing clear impact goals to inform impact due diligence efforts.
This section offers recommendations intended to help investors operationalize a systematic approach to impact due diligence within their organization. This includes guidance on integrating impact due diligence into existing processes, staffing, engaging with investees, informing investment decision-making, and enabling more rigorous post-investment evaluations.
Reload document Open in new tab. Download [5. In recognition that we can only support a limited number of clients on impact due diligence projects we set out to create a comprehensive public resource with practical tips, advice, and guidance that practitioners could use to engage in impact due diligence. The Guide and our previous report on emerging best practices are a direct result of the willingness of the impact investing community to openly share their knowledge and expertise with us to help the field deepen its approach to impact.
We are extremely thankful to the many fund managers, institutional investors, foundations, development finance institutions, consultants, and industry experts for their helpful insights, advice, and are excited to be able to offer the Guide as a resource to the field.
Given the sheer magnitude of our global challenges, it is essential that impact investors meaningfully integrate impact considerations into each stage of the investment process.
We hope that this Guide can serve as a helpful resource that empowers the field to more efficiently, accurately and systematically assess expected impact prior to committing capital. We look forward to continuing the conversation and collaborating further on this important topic.
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