Business owners unquestionably should and could have the most current and detailed view of their business. However, a very well-informed understanding of a business is not the total knowledge base needed to execute critical business transactions – whether the transaction is a strategic acquisition, sale of the business or a capital placement or raising.
The intricacies of a material, critical business transaction need specialist knowledge, skills and experience to achieve the optimum results.
Business advisers such as accountants and lawyers have roles to play in executing material business transactions, but invariably the accounting and legal aspects of transactions are relatively small parts of the total transaction load and burden. The key issues are –
- To identify the appropriate counter-parties – the premium buyer, investor or seller. This requires deep market knowledge, fresh research and a strong knowledge of the relevant business sector.
- To execute the transaction process, relentlessly, professionally and with expertise that results only from many successful transaction engagements.
- To negotiate (“sell”) the best possible transaction structure – preferably in a competitive environment with counter-parties competing to complete the transaction.
Extensive research works and publications regarding execution requirements for critical business transactions confirm that –
- Execution of even a relatively simple transaction takes from 4 to 6 months to complete, and typically consumes over 500 hours of dedicated effort by experienced practitioners and support staff.
- Business owners and managers achieve a higher yield from time applied to optimizing the performance of their business during the transaction cycle, rather than focusing on the execution of the transaction.
- Execution of a critical business transaction requires immediate action on issues as they arise. A material transaction demands highly responsive and optimal responses to issues and challenges as they arise – and issues and challenges are certain to arise. Absence, or the many and varied demands of day to day business can cause delays and severe disruptions to critical business transactions. Transactions need to be executed “relentlessly”, as quickly as possible. When favourable conditions prevail to close a transaction, focus of the transaction team needs to be completely dedicated towards completion.
- The processes, methodologies and skills required to complete a material, critical business transaction are substantial, specialist knowledge domains. Business owners, line management executives and Board members typically have little or limited experience in managing and executing critical business transactions. Knowing exactly what to do, and when to do what, is knowledge gained from many, many varied transactions. This knowledge can’t be invented “on the fly”.
- Preserving confidentiality during the course of a critical business transaction is a fundamental requirement, not only for the optimum transaction outcome, but sometimes for the survival of the business. Business owners and executives typically encounter confidentiality issues, when working on material transactions inside an operating business.???
When considering the appointment of an adviser to facilitate a critical business transaction – capital raising, acquisition, sale of business, spin out/divestment – key issues to consider include –
- The advisor’s knowledge of the market sector – specialist sector knowledge is invaluable.
- Track record of successful transactions in the relevant business sector.
- Demonstrable advanced negotiating skills.
- The knowledge and experience of the professional who will lead the engagement – a firm’s brand is important in creating credibility, but the engagement lead professional is critical.
- Can demonstrate the knowledge and research skills necessary to identify parties with “good fits” and appetites for the intended transaction.
- The “robustness” of the advisor’s demonstrable methodology and process.
- The relevance and depth of the advisor’s established sector relationships, including relationships with relevant transaction targets with likely interest, appetites and capacity to complete the intended transaction.
- Fee rates and structures, which should be closely aligned with the client’s interests.
- The level and expertise of the resources to which the advisor will commit to the engagement.
- The level of established transaction documentation which the adviser can produce, to expedite the transaction and minimize transaction costs – legal, due diligence etc.
- Whether the advisor is appropriately licensed – undertaking complex, critical business transactions, and providing quality advice through to completion, requires an AFS license. Provision of financial advice without an AFS license is illegal.?
Since 1989, Newport Capital has successfully executed hundreds of client engagements. Our clients range from privately owned rising stars to ASX-listed companies and major global vendor organisations.
Newport Capital’s industry focus and core knowledge base is across the TMT spectrum.
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