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What is the best way to structure a deal for acquiring companies in different industries?

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If you are an investment banker, you may have to advise your clients on how to structure a deal for acquiring companies in different industries. This can be a challenging task, as you need to consider various factors such as valuation, synergies, financing, and integration. In this article, you will learn some of the best practices and tips for structuring a deal for cross-industry acquisitions.

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Optimal valuation methods:

Use the most suitable valuation method for the industry, like DCF or comparable company analysis. Cross-check results with other methods to ensure accuracy and align with industry standards.### *Tailored integration plan:Develop a clear integration plan that addresses governance, communication, and operations. Focus on aligning cultures and systems to ensure a smooth merger across different industries.

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Matheus de Souza Barboza

E-commerce | Marketplaces | Finan?as |…

1 Valuation methods

One of the first steps in structuring a deal is to determine the value of the target company. Depending on the industry, you may use different valuation methods, such as discounted cash flow (DCF), comparable company analysis, or precedent transaction analysis. DCF is a method that projects the future cash flows of the target and discounts them to the present value. Comparable company analysis is a method that compares the target to similar companies in the same industry based on financial ratios and multiples. Precedent transaction analysis is a method that looks at the prices paid for similar companies in the past. You should use the most appropriate method for the industry and cross-check your results with other methods.

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2 Synergy analysis

Another important step in structuring a deal is to estimate the potential synergies that can be achieved by combining the acquirer and the target. Synergies are the benefits that result from the merger or acquisition, such as cost savings, revenue enhancements, or operational improvements. Synergies can be classified into two types: revenue synergies and cost synergies. Revenue synergies are the increases in sales or market share that can be achieved by cross-selling, cross-marketing, or expanding into new markets. Cost synergies are the reductions in expenses that can be achieved by eliminating redundancies, consolidating functions, or leveraging economies of scale. You should quantify the synergies and factor them into your valuation and deal terms.

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Karanjeet Singh, ACA, CFA, MBA

Partner - Investment Banking | Instagram: _karrancy
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A correct and feasible synergy analysis is of utmost importance when acquiring companies in different industries. On a fundamental level the transaction should make economic and business sense while saving resources. The objective should not be just to make a conglomerate with different businesses but a related business system in which each business drives the other one thus creating a thriving business ecosystem.

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Jonas Hartmann

Business Process Transformation
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There are various reasons why a transaction makes sense. On the one hand, a synergy in sales is important, on the other hand perhaps a strategic purchase to enter a new market. It is also important to think about the time after the purchase. In a post-merger integration, high costs can arise and some change work is necessary to remain successful after a takeover.

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3 Financing options

A third step in structuring a deal is to decide how to finance the acquisition. There are mainly two types of financing options: debt and equity. Debt financing is when the acquirer borrows money from lenders, such as banks or bondholders, to pay for the acquisition. Equity financing is when the acquirer issues new shares to investors, such as shareholders or private equity firms, to raise funds for the acquisition. Debt financing has the advantage of being cheaper and tax-deductible, but it also increases the leverage and risk of the acquirer. Equity financing has the advantage of being less risky and dilutive, but it also reduces the return on equity and control of the acquirer. You should choose the optimal mix of debt and equity that maximizes the value of the deal and minimizes the cost of capital.

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4 Integration plan

A final step in structuring a deal is to develop an integration plan that outlines how to merge the acquirer and the target. Integration is a critical phase that determines the success or failure of the deal, as it involves aligning the cultures, systems, processes, and people of the two companies. Integration can be more difficult when the acquirer and the target are in different industries, as they may have different business models, strategies, and practices. You should identify the key drivers of value and the potential sources of conflict, and design a clear and realistic plan that addresses the following aspects: governance, communication, organization, operations, and performance.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Matheus de Souza Barboza

E-commerce | Marketplaces | Finan?as | Estratégia | Consultor | Conselheiro | C-level | Valuation
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Definir uma estratégia de aquisi??o que leve em considera??o a diversidade de setores alvo. Desenvolver critérios claros de sele??o e avalia??o das empresas alvo em cada setor. Montar uma equipe multidisciplinar com expertise nos diferentes setores de interesse. Realizar uma análise de risco e oportunidades específicas para cada setor antes da aquisi??o. Implementar um plano de integra??o que leve em conta as particularidades de cada setor e promova sinergias entre as empresas adquiridas.

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What is the best way to structure a deal for acquiring companies in different industries?

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1 Valuation methods

2 Synergy analysis

3 Financing options

4 Integration plan

5 Here’s what else to consider

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