Thread by @RyanGoral

Today in the #TheStrategicMnALounge…

Strategic M&A Lounge Principle #5: Deal Structure

Deal structuring gets a lot of airtime between M&A professionals. For good reason, it is a fun and sexy topic and it has earned its ability to get attention in bars all over the world. 🧵

I love talking about creative deal structures like everyone else but what is oftentimes missed is the discussion about its usefulness as a critical tool to get deals closed and manage risk.

In the current deal environment, supply of good businesses still is well short of the available capital looking for good companies to buy. This supply/demand dynamic has, among other reasons, created a market of elevated prices.

The right deal structure can bridge the gap between the current ‘value’ and its ‘price’. This can be a creative seller carry note, earn-out or equity roll. While these are straightforward deal structure mechanisms, it is an entirely different thing to be able to negotiate and

sell your deal structure to a seller. This takes skill, applicable knowledge and an open mind.

What I love about a creative deal structure is its ability, when done right, to manage the risk of the transaction.

In addition to its usefulness to bridge the value/price delta, a well-crafted deal structure can move some of the risk of the deal from the buyer to the seller.

The ultimate success of a deal structure is aligning incentives.

Whether that is transparency through the due diligence process or specific post-acquisition integration support once the deal closes, the best deal structures incentivize everyone to row the boat in the same direction.

Valuing a company is mostly dependent on its ability to generate future cash flow which means the value is dependent on the buyer’s ability to execute. Because of this, the value/price dynamic of a deal has a range depending on who the buyer is.

This means that in order to be able to bridge the value/price gap, you must include the company’s future performance into the equation and how you end up structuring the transaction will have incredible implications on ensuring the value and return metrics are achieved.

Until next time in #TheStrategicMnALounge….

#mergersandacquisitions #mna #corporatedevelopment #corpdev