Time Kills Deals, What Can We Do About It?

Deal readiness is key: More time spent upfront leads to smoother, faster transactions and maximised deal value — it’s a non-negotiable for success.

There is a resounding theme speaking to investors and other advisors around the city – deals are taking longer. This theme has evolved over the past few years from a bit of a nuisance to a downright irritation, nevertheless it is the new normal.

More than a decade ago, when virtual datarooms were introduced, advisors and vendors alike were promised a new world of reduced deal timelines. Yet, in a recent Intralinks study, it was found that in the period from 2013 to 2023, pre-announcement due diligence periods have increased significantly from 124 days to 203 days.

There are many factors influencing this drawn-out process. In recent times and currently this includes:

• Employment issues – casual vs. employee – more DD
• Cyber security – more DD
• Interest rate rises (impacting funding for acquisitions)
• Economic conditions – what is the best use of capital?
• Vendor / buyer valuation gap

But the area I would like to focus on is Deal Readiness ,the main reason being it is something within our control when advising on the sell-side. The 5 influences on process above are mostly external factors – macro environment, changes in legislation and buyer due diligence requirements, but deal readiness is internal. To me, it is a non-negotiable on a transaction, as it requires little skill (when compared to technical and negotiation aspects of a transaction) but can set a business sale up for success. A well organised and ready business will soften the external factors because ultimately a buyer has greater confidence in the asset it is acquiring.

We are a firm believer that more time spent upfront will lead to significantly less time “in process”. At PKF Corporate Finance we focus on the mid-market, which we define as transactions with an enterprise value of $20m-$200m. A large proportion of our client base is owner managed businesses, family businesses and corporates in their growth phase. These businesses are typically targeted by buyers such as large and listed corporates or private equity.

These same businesses are often the most underprepared to go through a divestment process. They are not yet the corporate machines that their counterparties or buyers are – and this in part is the reason they are successful in their own right. They have retained the entrepreneurial spirit which has driven growth and made them into an attractive acquisition target. It’s our job to accentuate the value that the entrepreneurial business creates whilst positioning it as a well-run, capable corporate in the future.

So what does it mean to be deal ready? And how can we assess the work that is required to get to that point? The below key considerations outline this assessment:

What is important in a business sale?

• Achieving the best price and smooth deal execution are non-negotiables in a sale process.
• Advance planning and long term preparation are key factors in minimising transaction risk and maximising deal value.

What does it mean to be deal ready?

Being deal ready means addressing all opportunities to improve the outcome in a divestment or other transaction through:

• An objective review of the financial, commercial and operating condition of the business;
• Understanding the financial and other improvements which drive value; and
• A clear plan with actionable steps to move from current to optimal state prior to any sale process.

Why is being deal ready important?

Being deal ready allows you to:

• Identify and address ‘red flags’ upfront to minimise subsequent transaction risk; and
• Identify and improve the quality of earnings and assets to optimise deal value.

What can I do to be deal ready?

A deal readiness plan should consider:

• A detailed assessment of the quality of available financial information;
• Modelling financial performance to understand key profitability and value drivers;
• Understanding market value on an ‘as is’ basis to establish a baseline; and
• Scenario testing to identify areas where maximising profitability leads to value optimisation.

What can we do to help?

• Vendor readiness assessments and advice;
• Valuation assessments and advice;
• Strategy review and consulting;
• Financial modelling and 3 way forecast preparation;
• Data book preparation; and
• Vendor due diligence services.

The above graphic illustrates PKF’s methodology and approach to Deal Readiness. In each step, as well as in focussing on our clients business in review, we see it equally important to put ourselves in the buyer’s’ shoes:

• How will they receive this information when submitting an offer or performing due diligence?
• And how can we demonstrate the business’s strengths and qualities – as this will ultimately lead to a higher price, better terms and (hopefully…) a quicker process.