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Case Study - M&A Advisory Services
Actual Client Engagement
This example, representing an actual client engagement, demonstrates that we are capable of covering the entire spectrum of an M&A transaction. For purposes of this Case Study, we will refer to this as the "Barcelona" transaction
The Barcelona transaction is a good of example of how ClearPath is able to provide multiple resources to help manage all different aspects of the process of targeting and acquiring a business, from start to finish. Our entire team participated in some fashion. Donn and Patrick conducted the prospecting, identifying the target company and making the initial contact. After establishing a credible base of trust including the creation and execution of a mutual Non-Disclosure Agreement, we were able to secure a basic package of information from which we could form the basis of an offer to purchase. Donn and Patrick performed the initial review of this information. Chris performed the final review and prepared the initial recommendation to our client. A group meeting was held to present the offer verbally after which Chris prepared the Letter of Intent, to capture the terms of the offer. Upon negotiation and ultimate acceptance, the ClearPath team commenced detailed financial and business due diligence. This process included the preparation of a detailed due diligence work plan, information request list and review - all of which was prepared and performed by the ClearPath team. Chris, Stacey and Patrick were able to do all of the review and due diligence. As the process neared the point of drafting legal documents, our client's lawyer was dealing with a conflict and could not dedicate time to the project at the desired point. With his approval, Chris was able to provide support with doing the initial draft of the Asset Purchase Agreement (APA) which was then passed to the outside attorney for review and edit, saving significant time and cost to our client. Chris also assisted in the negotiation process and the formulation of terms of the other legal documents. Finally, Marjorie and Lori were able to help with some of the administrative and Data Entry tasks by preparing and getting the appropriate information cataloged.
One of the key benefits of having multiple resources associated with this process is that prospecting and initial analysis can continue while the detail analysis and review is going on with other accounts. We can apply the appropriate level, from junior to senior, and the required type of expertise in the right situation. We are able to provide business, financial and legal expertise in combination with significant M&A experience, to handle a wide variety of required responsibilities. In addition, we are able to provide the appropriate on-site resources that would not take away from our client's need to focus on its day to day operations.
Listed below is a bullet point review of the major items involved in the Acquisition Process and what resources ClearPath used to address them:
- Market Development - Identifying potential acquisition candidates, qualifying their potential and interest and then getting them to agree to move forward.
- a. Prospecting - We use the initial list that was provided by our client and then supplemented it with our own research which included a D&B search by SIC code, review of hard copy and Internet yellow pages, review of the state corporation site, trade association member lists, complimentary industry listings and a variety of Web search processes to identify and profile candidates. Once identified, a profile and deal sheet is created to identify all of the major attributes of the business before we make the initial call. This is typically done by Patrick and Donn with oversight by Chris.
- b. Cold Calling - In the Barcelona example, Donn made the initial call to the owner of Barcelona on 3/28/06.
- c. Initial Contact - The owner returned Donn's call on 3/28/06.
- d. Lead Qualifying and Development - Donn had an extensive conversation with the owner, answered questions and got a feel for the size of the business and that it was a good fit. Our approach and demeanor is intended to create a sense of sincerity and trust. We are very personable and with our business and M&A experience, we can relate to the position of the prospect. The owner agreed to move forward. At that point, Donn brought in Patrick to prepare the initial package for Barcelona which was sent on 3/29/06. This package included a Non-Disclosure Agreement ("NDA") and an initial list of requested information to allow us to do an initial valuation to confirm mutual interest prior to taking further steps. It is our goal to ensure that we quickly determine that there is a strong likelihood of completing a transaction on mutually acceptable terms so that we don't expend significant time and our client's money pursuing a transaction that has no real chance to close.
- Initial Valuation and related Initial Review - ClearPath worked with the owners of Barcelona to answer their questions, address their concerns and feelings of unease (they had not been through a transaction before) and coordinate the signing of initial NDA and the gathering of the initial information request. As ClearPath receives the requested financial and business information, it is entered into a spreadsheet for analysis and review.
- a. Signing of NDA - Patrick and Donn both followed up with the owner and the NDA was signed and sent back on 3/30/06.
- b. Collection of information - the owner sent the information to Donn on 4/7/06.
- c. Review and Analysis of Information - Patrick and Donn reviewed the information, contacted the owner for follow-up questions and supplemental information needs, plus some specific information that our client had requested.
- d. Initial evaluation and Recommendation - Chris reviewed the initial evaluation and added perspective. Discussions were held with our client who raised additional questions that were provided to the owner for follow up. After this information was received, ClearPath finalized the analysis. This package was then provided to our client on 4/17/06.
- Initial Meetings with Prospect - An initial tour and face-to-face meeting is often helpful to further the sense of trust and gain critical information to help evaluate the potential transaction and to structure the initial terms to be proposed in the Letter of Intent.
- a. Our client and Chris arranged for a meeting and tour with Barcelona on 5/4/06.
- Follow up
- a. Chris contacted the owner for a short list of information we requested after our meeting.
- b. Our client began research of the real estate issues particular to Barcelona's site.
- c. Upon receipt of the data, a second phase of analysis was completed with combined ClearPath/client resources to provide additional insight needed to determine the proposed value.
- d. Additional questions were raised which were posed by ClearPath to the owner.
- e. A conference call was scheduled to ask final questions and then to provide a verbal range of value to be included in an LOI. A written list of items to discuss and related agenda was prepared by ClearPath, reviewed by client and sent to Barcelona. This call was conducted on 5/26/06.
- f. Barcelona requested a meeting with our client at our client's facility. This meeting was held on 5/30/06. The parties agreed to move to the LOI.
- Letter of Intent - With the initial analysis and valuation, and working from existing templates, ClearPath assisted in developing the LOI and then followed-up with the prospect on any concerns and questions.
- a. Development and Follow-up - Chris worked with our client and created the initial draft LOI which was approved and sent by our client to the owner on 6/8/06. The LOI was reviewed by Barcelona's legal counsel and signed by all parties.
- Detail Due Diligence - ClearPath completed detailed financial, operational and legal review of the company information and provided detail analysis for validation of the proposed purchase price and incorporation of terms into the legal documents (APA).
- a. An extensive Initial Information Request List is customized for this particular transaction and then sent to the prospect. This list was sent to the owner on 6/20/06.
- b. Onsite Presence - Two different onsite visits were conducted in July to start the due diligence, Chris and Stacey on 7/5 and Chris and Patrick on 7/12.
- c. Detail Review and Analysis
- i. Financial - Stacey, Patrick and Chris completed review of financial data, bank/revenue verification, owner discretionary items, review of payroll and benefits, etc. ClearPath created a financial and cashflow forecast through 2007.
- 1. Because of limitations in Barcelona's systems and manual processes, ClearPath had to create financials which segmented the target business division from the target company's other operations.
- ii. Customers, Contracts and Operations - Patrick and Chris conducted this portion of the due diligence, reviewing contracts (customers and vendors), operational data, invoice summaries, product activity, operations and fixed assets.
- d. Forecasting - Chris created a cash flow and P&L forecast, and Patrick and Stacey created the Personnel Cost/Benefits "before and after" model for the client's CFO.
- e. Admin Support
- i. Data Entry - Lori and Marjorie helped with data entry and creation of spreadsheets
- ii. Document Control - Lori coordinated gathering and transmitting most of the documents that were not electronic to an online depository so all parties could be assured of working with one set of documents and due diligence. Patrick and Chris cataloged.
- f. Due diligence is substantially completed within 30 days. Open items and loose ends are tracked and resolved through Closing, including updates to the financial analysis for more current financial data from the prospect.
- Legal Document Preparation and Review - ClearPath has the ability to prepare or assist in the preparation of legal agreements needed for a transaction, plus review of the prospect's internal and external agreements to ensure that all findings from due diligence and deal specific points raised in the process are properly reflected in the Asset Purchase Agreement and related schedules and agreements.
- a. Assistance with APA - Due to scheduling conflicts with client's primary attorney, Chris was able to create the initial draft of the APA to expedite the process with Barcelona. The outside lawyer took over the process upon his return.
- b. Throughout the development of the legal agreements, Chris and our client review the drafts to ensure business and deal points are properly reflected. ClearPath provides input in areas of compromise.
- c. The initial draft of all legal documents was largely completed by end of August.
- Negotiation and Intermediary Support - ClearPath provides an "outside" perspective to client and the owners of the target company which can, at times, help clarify positions, assist in negotiations, identify appropriate points of compromise and assist through rough spots in the transaction. ClearPath assists our clients in this sense as well as providing an experienced sounding board for all parties to help keep the deal on track. This role as "Trusted Business Advisor" is often recognized by both sides of the transaction and typically helps bridge gaps that often exist between the traditional "Buyer" and "Seller" mentality. Often times, one party is much less experienced in transactions than the other. ClearPath has experience on all sides of M&A transactions including being direct party as both a buyer and seller. This experience and people orientation helps ClearPath relate to the prospect and helps build trust while advocating for our client's position.
- Open points resulting in a delay to closing included renewal and assignment of significant customers and negotiating of new lease terms for the facility.
- Deal Closure. On October 1, 2006, the deal closed.
- ClearPath is capable of assisting in post-deal business integration which is often times the riskiest part of acquiring a business. To date, as of December 2006, there have been no surprises or post-closing problems.
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