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In M&A deal making, we often come across situations in which both parties (buyer and seller) complement each other perfectly and would like to proceed to transacting a deal. However, despite this, over the last two years, we have experienced several situations where both the buyer and seller have had real difficulties in getting a deal financed and structured in a mutually acceptable manner.

This situation doesn’t occur so often with large (buyer) companies but more often with relatively small companies, with revenues below €10M, who want to make an acquisition in order to scale up their business. If we had only considered transactions where the final amount would be settled in cash, it is probable that at least half of the deals we have been involved with would not have taken place.

We have been involved in many deals where we managed to propose a deal structure which, after tough negotiations, worked out well for all parties. Let me share with you some models which have proved to be successful if an all cash deal doesn’t work:

- Bank guarantees from the buyer
o Bank guarantees are similar to cash, except that you don’t have them to hand; however, they will become available within the agreed period.
o The advantage of bank guarantees is that they will save the buyer cash.
- Combine bank guarantees with spread payments
o With every installment, the bank guarantee can be lowered and eventually, the transaction will be completed.

- Reversed transaction
o We have also finalized deals with a payment structure which stated that, if the payment criteria were not met, the seller had the right to receive back all his shares, and, in addition, the buyer was not allowed to add any debts or liabilities to the acquired company during a specific time frame.

- Exclusive partnership with option to acquire, based upon an agreed valuation
o By adopting this method, there is no direct transaction but risk to the buyer is minimized and the opportunity to purchase the company within an agreed time frame and at an agreed value is still available.

The difficulty in these M&A processes is generated by the risk avoidance behavior of both parties  and a strong focus on avoiding direct cash payments in order to maintain working capital. The challenge is to get the synergies to work in such a model where there needs to be absolute clarity about ownership. However, what we tend to see many small companies with high levels of ambition that should try to combine forces in order to reach a level of business that enables them to become more competitive.

This article gives only a small insight into what is possible in the M&A world. We work with all types and sizes of companies in our sector and sometimes, we are simply required to combine our M&A expertise with highly creative solutions to bring both parties to the negotiating table. If you require advice pertaining to M&A, do not hesitate to give us a call or contact us for a free consultation to discuss your specific requirements.
Geert Kruiter, SVP Continental Europe