Buy-Side Representation

Acuity Mergers + Acquisitions helps qualified potential buyers find the right target businesses for acquisition.

Step One: Target Profile and Negotiate Terms of Buy-Side Representation

Historically, the buyer’s advisor was paid a portion of the seller’s advisor’s success fee. In more recent years, there is a trend away from this “co-brokering” and toward Buy-Side Representation Agreements in which the buyer pays their advisor’s fees. An industry standard success fee formula is generally negotiated with the buyer that includes a retainer to compensate the advisor for search efforts prior to a successful transaction. As with Sell-Side Representation, the retainer is credited against any ultimate success fee but is nonrefundable otherwise. Other terms of the Buy-Side Representation Agreement are also negotiated between the buyer and the advisor at this time.

The search process begins with establishing a target company profile based on the potential buyer’s specific criteria. At the same time, the advisor works with the buyer to identify overall buying power based on the buyer’s financial situation. The advisor works with the buyer to make sure that the target profile addresses all the necessary specifications. Beyond the profile, other metrics are explored to help the advisor make sure that each potential target company is the right fit for the buyer.

Step Two: Targeted Search for Qualified Targets

During this step, the advisor uses the information from Step One to begin searching for qualified target companies. There are a variety of networking channels that can be used for performing a search of firms listed for sale. The advisor keeps the client’s identity, as well as any information that might lead to the client’s identity, strictly confidential at this point in the search.

Acuity Mergers + Acquisitions distinguishes itself from most advisors in the market by adding an active search component to the typical networking channels available in the Mandamp;A industry. We identify potential target companies that fit the target profile but that have not indicated any intention to sell. We then contact these potential targets to gauge their willingness to entertain an offer. This active marketing approach ensures that our clients are not missing prime opportunities simply because an attractive company is not actively seeking a buyer.

Once a target company indicates a willingness to proceed to the next step, the advisor makes sure that all necessary confidentiality agreements and other safeguards are in place before revealing any identities or sharing sensitive information. With all appropriate safeguards in place, the advisor introduces the client to the target company and opens up the dialogue between them to begin negotiations.

Step Three: Participate in Negotiations

This step usually begins with exchanging various financial and operational documentation, plus meetings between the potential buyers and sellers. The target company typically discloses between three and five years of financial results, along with information about the company relating to operations, management, competition, customers, etc. The buyer sometimes discloses financial information demonstrating their financial strength and good credit.

The advisor usually serves as the point of contact for both sides. Information and documentation is disclosed to the advisor and then passed along to the receiving party. This ensures that the advisor can keep track of the total picture, which is important when drafting the offer to purchase or letter of intent. These documents are typically prepared by the advisor and then sent to both sides for their attorneys and accountants to review. Final agreements and other documentation used at closing are usually prepared by the attorney for the seller and reviewed by the attorney for the buyer.

When real estate is included in the deal, the deal is typically divided into two transactions. The real estate portion of the transaction is taken to a title company and processed by licensed real estate brokers. Some advisors have their real estate broker license and handle these transactions, whereas other advisors refer the real estate portion of the deal to an appropriate real estate professional.

It is during this negotiation step that deals often fall apart. Aside from disagreements about a purchase price, there are multiple other issues involved in a deal that can prevent the parties from completing the transaction. The advisor works with both parties to explore compromises or alternative deal structures that will satisfy both parties and keep the deal moving toward completion.

Step Four: Closing

Closing a deal involves both parties executing all the necessary documents and satisfying all applicable conditions and requirements for the effective transfer of ownership of a business from the seller to the buyer. A closing often is a joint meeting with all parties present in a conference room. However, in today’s virtual world, many closings are accomplished by the advisor taking the necessary documentation to each party separately.

The transfer of funds is the part of every closing that commands everyone’s attention. Commonly, the advisor serves as an escrow agent, holding any earnest money deposits as well as receiving funds at closing from the buyer, which are then disbursed to the seller. Acuity Mergers + Acquisitions utilizes an attorney as an escrow agent who accounts for all escrow funds through his trust account in accordance with the professional standards required of all attorneys.

One reason for utilizing an escrow agent is to ensure that all interested parties are paid the appropriate amounts out of the funds tendered by the buyer. Any third-party claims or professional fees due may be paid by the escrow agent directly before releasing the remaining funds to the seller. This is similar to the service commonly provided by title companies in real estate transactions.