Learn about the promising sectors for 2021 and discover the steps in the M&A process.
Contrary to popular belief, the mergers and acquisitions (M&A) process is not limited to large companies. 2020 was not an easy year, but with the vaccine already in the application phase, the market is already thinking about the first steps post-crisis.
Because of this, M&A operations have started to pick up again, making it the ideal time to evaluate strategies. Interested? Learn more by reading our content created especially for you!
Estimated reading time: 4 minutes
M&A
Generally speaking, it's not just a company that is buying or selling that needs to look into M&A strategies. Many preparations are necessary before a company is sold, or even just to better understand the business's capabilities and potentially acquire and expand it.
Therefore, there is homework to be done regardless of whether at that moment there is an interest in selling or acquiring, including understanding the difficulties and challenges. This maturation involves an in-depth study of all the steps of a merger, acquisition, or sale itself, and is extremely important because, from there, you are already prepared to understand your position in relation to all the processes, what challenges will be faced, and how the market works in general.
M&A: two major aspects
Regarding the reasons for doing an M&A, there are two main aspects. The first is: I have a business and I see that it could be enhanced if I eventually had a partner who would bring, in addition to money, knowledge to my company, contributing to growth at a much faster rate than if I were alone.
On the other hand, I might want to bring in a partner and not necessarily stay in the business, or stay for a while and then leave. It's a resource now, given the value of my business, that would only be possible to acquire over the years. Therefore, using that profitability through the sale, even if I no longer have the asset that generated income.
The second perspective is that of the buyers. There are several reasons to acquire a company: you may be eliminating a competitor, incorporating a new portfolio into your existing portfolio, expanding production, or creating synergies in the production chain, among other things.
Promising sectors for M&A
Regarding the sectors, what I've seen is obviously the technology involved. Regardless of the sector, it's the technology that attracts many M&As, therefore, having scalability in relation to the business is the key attraction.
In the financial sector in general, even more so with this issue of PIX (Brazilian instant payment system), digital banks and the trend of migrating from physical to digital will greatly foster M&A. We at Value have participated in several conversations and transactions related to agribusiness; healthcare in general was already an extremely heated sector, and with the Coronavirus situation, I imagine it will also be attractive.
A derivative of agribusiness, and perhaps stemming from the work-from-home situation, is the issue of food. The food chain in general, and any solutions that exist in this sector, should be quite attractive due to the volume and the increase that occurred last year.
How to prepare?
Investors can prepare for this period by seeking opportunities and keeping a close eye on them. Companies interested in investing commonly structure an investment thesis: target market, target company, company profile, profile of the company's shareholder, and profitability profile.
This investment thesis details the ideal profile, considering the investor's characteristics. Based on this "map" thesis, potential businesses that fit within this line of thinking and expansion are sought.
Therefore, the first step, or preparation, in this regard is to build a solid investment thesis. The second is to have the support of professionals specialized in research, market analysis, finance, and legal aspects, which will be fundamental. And finally, to execute all of this, should you find a company that fits within this "map."
>> Watch the Talk with the largest investment funds in the country
M&A steps: buyer
- Develop the thesis. conduct investment research and support this investment thesis;
- Seek help. financial and legal aspects for the transaction;
- Have advisories to mediate the transaction in order to obtain a professional bias;
- Look at the deals that fit into your "map" and your differentiators: the partner, the company's governance characteristics, and all the financial characteristics;
- Do valuation from the company;
- Write a letter. Make the offer and, if accepted, finalize the transaction details;
- Conduct Due Diligence of the business so that no contingency, risk or problem that may not have been identified goes unnoticed;
- Start from the processes Acquisition/merger/modeling of how this business will be transacted subsequently. Whether it will be merged, have a subsidiary, an investment...
- Integrate the entire team. align the system and processes with what is expected, and work from there forward with a focus on scalability.
M&A steps: seller
When we talk about the other side of the table, the company that wants to SELL its business, the first step is also to seek out professionals in the market, especially regarding the financial and accounting aspects. This involves conducting a diagnosis and valuation of the business; the valuation is used to determine the price, and the business highlights any potential vulnerabilities, differences, and what the entrepreneur should expect.
Producing a teaser is also recommended. A presentation of the business using concise material that is attractive and highlights the main differentiators of the business. Then, conduct a market search for potential players who may be interested in the company in a very professional and discreet manner to avoid compromising its market position.
Once that's done, all the negotiation procedures closely align with what was previously discussed. From that point on, upon finding someone who is a good fit and interested, the next step is the same: letter of intent, memorandum of understanding, due diligence, legal aspects, finalizing the negotiation, structuring, etc.
Count on Value!
Now that you understand the importance of processes for a successful M&A and the promising sectors for 2021, count on Value on this journey! Let's talk?
