Demystifying Mergers and Acquisitions process for B2B SAAS

For every founder, embarking on an M&A journey can be daunting yet extremely rewarding. This process demands strategic planning, thorough groundwork, and seamless coordination to achieve favorable outcomes. In this discussion, we'll explore what to expect during a comprehensive M&A process facilitated by Evernile.

Stage 1: Defining M&A Criteria

Defining the acquisition criteria stands as a pivotal phase within the M&A process, facilitating assurance that your company is optimally positioned for a successful sale. This essential stage involves an exhaustive examination of various aspects including financials, intellectual property (IP), SaaS metrics, and pertinent data crucial for potential buyers' evaluation. By scrutinizing these elements, we aim to pinpoint any potential issues necessitating attention prior to market exposure, thereby enhancing the likelihood of a successful transaction.

Financial scrutiny during this stage encompasses an in-depth analysis of revenue streams, profit margins, and cash flow. The examination of intellectual property rights also assumes paramount importance. It serves to validate ownership and mitigate any potential legal hurdles related to software or IP assets prior to market entry.?

Furthermore, we undertake a thorough evaluation of SaaS metrics, delving into key performance indicators such as revenue growth, average revenue per user (ARPU), churn rate, customer acquisition cost (CAC), retention rate and customer lifetime value (LTV).?

Based on the analysis of the information, we prepare a draft criterion for undertaking the acquisition transaction – type, valuation, focus geographies etc. Ultimately, this stage serves as a proactive measure to tightly structure the transaction identify areas for enhancement, thereby augmenting the company's overall value proposition and improving its appeal to prospective buyers.

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Stage 2: Creating Marketing Material

Once the acquisition criterion is defined and a consensus is achieved, we proceed to craft comprehensive marketing materials, comprising a Confidential Information Memorandum (CIM), a no-name teaser, and a financial package.

The no-name teaser serves as a concise overview/summary of the company, omitting the name of the company to preserve confidentiality. This document is disseminated to all potential acquirers identified in the subsequent stage, ensuring that access to information about your company is restricted solely to those willing to commit to a non-disclosure agreement (NDA) to access further details.

The Confidential Information Memorandum (CIM) assumes a pivotal role in the M&A process, serving as a meticulous compilation of all essential information pertinent to the target company. This comprehensive deck equips prospective buyers with the requisite insights to evaluate the business and determine their willingness to engage in the bidding process. It typically encompasses a details of the company's historical background, operational framework, financial performance, product/service portfolio, market positioning, and avenues for future growth. Additionally, the CIM may incorporate forecasts for future expansion and other pivotal metrics.

As the nomenclature implies, confidentiality underscores the dissemination of the CIM, exclusively shared with potential buyers who have executed a non-disclosure agreement (NDA). This precautionary measure safeguards the sensitive information of the target company from unauthorized disclosure to competitors or other external entities.

At Evernile, we handle the end-to-end creation of the marketing material which can really put spotlight into the core value proposition of the company and its future growth potential. Our in-house team of financial analysts, management consultants, growth strategists and graphic designers collaborate to produce a very robust set of marketing material with an objective to ensure potential buyers can understand and appreciate the significance of the acquisition opportunity.

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Stage 3: List of Potential Buyers (In Parallel with Stage 2)

Leveraging our tracking systems, market momentum and extensive buyer network, we typically shortlist more than 200 potential acquirers who may express interest in the company. The list of acquirers might include strategic buyers, aggregators or investors. Our systems continuously analyze data from various sources to identify entities with strategic relevance to your business.

In addition to these resources, we also tap into your deep understanding of your niche market. As founders, your experience provides invaluable insights within your industry. By collaborating closely with you, we leverage this experience to identify further strategic acquirers, enriching the pool of potential opportunities for a successful deal.

Stage 4: Buyer Reachout

After the completion of the marketing materials, we initiate the process of engaging prospective buyers. Throughout this period, founders are not expected to be extensively involved, affording them the freedom to maintain focus on day-to-day operations.

The initial outreach entails the dissemination of a no-name teaser to potential buyers. This concise and anonymous document offers a snapshot of the target company's strengths, industry positioning, and value proposition while safeguarding its identity. This tactic serves to elicit interest from potential acquirers and gauge their initial responses to the opportunity without compromising confidential information.

Subsequently, once interested parties express their intent and execute a Non-Disclosure Agreement (NDA). Following the execution of the NDA, buyers gain access to the Confidential Information Memorandum (CIM) and accompanying financial package.

Throughout the marketing process, founders' involvement remains minimal, enabling them to sustain business operations without disruption. However, founders should anticipate occasional engagement in responding to inquiries and fulfilling requests for additional information from prospective buyers as they conduct their evaluations.

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Stage 5: Management Meetings

Following the review of the marketing material, selective potential buyers will demonstrate robust interest in delving deeper into the acquisition opportunity. At this juncture, we facilitate management meetings between you and these keen parties. These sessions are strategically crafted to allow acquirers to acquaint themselves with your team and to provide an avenue for both parties to assess the compatibility of a potential transaction from a cultural standpoint. Moreover, they serve as a platform for you to evaluate the seriousness and capabilities of potential acquirers.

In instances where significant interest is garnered from multiple potential buyers, an intermediate step is issuing Letter of Interest (LOIs). LOIs represent non-binding expressions of interest delineating the prospective buyer's preliminary valuation, deal structure, and other pertinent transaction terms. This procedural step aids in the screening and prioritization of the most promising candidates, ensuring that the subsequent conversations are focused and conducive to engaging with the most suitable potential acquirers.

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Stage 6: Defining the Deal Structure

In finalizing the structure, we engage in detailed discussions with our clients to understand their priorities, risk tolerance, and long-term objectives. We analyze the financial implications of different structures, considering factors such as tax implications, accounting treatment, and regulatory requirements.?

We also evaluate the potential use of instruments to tailor the structure to our clients’ needs. For instance, a cash-heavy deal might be suitable for a seller looking for immediate liquidity, while a stock-based deal could be more appealing if the seller believes in the long-term growth prospects of the acquiring company’s stock. Earnouts are another instrument we consider, offering sellers the opportunity to receive additional payments based on the future performance of the acquired business, aligning incentives and bridging valuation gaps. A blend of cash, stock, and earnouts can provide a balance between immediate value and future upside, appealing to both parties.

Stage 7: Submission of Non-Binding Offer/Letter of Interest

Upon gauging interest from potential acquirers, we request the interested buyers to send across non-binding offers along with establishing a definitive deadline and encouraging all parties to adhere to. This strategic approach injects competitive urgency into the process and steers buyers toward focusing their efforts on seizing the opportunity at hand.

Stage 8: Due-Diligence

Following the evaluation of multiple offers and the selection of the most favorable one, it's customary to enter into a no-shop or exclusivity agreement with the chosen buyer. This agreement serves to prohibit active solicitation or negotiation with other potential acquirers for a specified duration. Such exclusivity affords the selected buyer the opportunity to conduct a thorough assessment of the company, known as due diligence, without competition from other interested parties.

Depending on the nature of the acquisition, the due diligence spans between 45 to 60 days. The due diligence process entails an in-depth examination of various facets of your company, including financials, operations, legal and regulatory compliance, among others.

To facilitate the due diligence process, the buyer can also engage professional audit firms. These entities perform diverse analyses which scrutinizes the sustainability and accuracy of the target company's reported earnings.

It's imperative to recognize that the due diligence phase can be arduous and taxing, both for you and any members of your management team involved. The exhaustive nature of the process necessitates the provision of extensive documentation and responses to numerous inquiries, all while managing day-to-day business operations. Having Evernile by your side can mitigate the burden significantly by offering guidance throughout the process, managing expectations, and addressing any potential issues that may arise.

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Stage 9: Closure

Following the completion of due diligence, the deal is finalized, and the target company receives the predetermined amount of cash/stock/rights upon closure.

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In summary, navigating an M&A process as a founder can entail complexities and consume considerable time. However, by gaining insight into the expectations at each stage, you can proactively prepare yourself and your company for a favorable outcome. Engaging the services of a reputable M&A team to oversee the process can further enhance the likelihood of a positive result. Reach out today for a free chat and take the first step toward securing your company's future success.