Deal facilitation in deal-making bridges gaps and facilitate successful outcomes. These M&A advisors act as catalysts, leveraging their knowledge, networks, and skills to create win-win scenarios for all involved parties. Listen as the Revenue Rocket team dives into deal facilitation.
If you get a deal on the table, when do you accept it? M&A advisors usually work from origination to close, however an advisor can be utilized for specific functions in the process like origination only on helping getting a deal across the finish line. There are many different ways in which an M&A advisor can assist you, like deal facilitation.
Contact us today to learn how we can help you facilitate a deal or get ready for an M&A transaction.
Mike Harvath 00:05
Hello and welcome to this week's Shoot the Moon podcast broadcasting live and direct from Revenue Rocket world headquarters in Bloomington, Minnesota. I'm happy today to be presenting with my partners Matt Lockhart and Ryan Barnett. revenant rocket is the world's premier growth strategy, and M&A adviser to tech enabled services companies. We'll turn it over to you guys to say hi and get started.
Matt Lockhart 00:32
Hello Mike and Happy New Year. Well, I'm sure this isn't running in the first week of the year, but it is the first week of a what's going to be an awesome 2024. We're super excited. We're kicking off some new programs. And that's always fun. I think everybody's rested. Maybe need to bone up on the old exercise routine a little bit after a big holiday. And in a way we go. What's going on Ryan?
Ryan Barnett 01:06
Yeah, no, thank you. And happy new years to Well, happy holiday season. The only fact I can share with you is apparently 80% of prime rib sales are down in the last week of the year, something new I learned this holiday season. And I hope everyone came back ready and rested for an awesome 2024 I certainly am. And part of it is it's a good year to to get a deal done. And that's something that we were thankfully able to help with this year in what we call a deal facilitation. And what I wanted to talk with Matt and Mike here today is what is the concept of what is deal facilitation compared to an overall perhaps m&a process. And why it's important to consider having an advisor on your side when considering with a deal that may have already come together with a buyer and seller, but has not gotten over the finish line. So Mike, why don't you get us started and understanding we can just get it what is deal facilitation and and how should a buyer or seller look at an advisor in deal facilitation. And how's that different from a traditional M&A process?
Mike Harvath 02:21
Sure thing, right. So, first thing to comment on the prime rib stat, you know, I'm gonna explain my meat sweats over the holidays, plenty of meat over the over the holidays. But anyway, you know deal facilitation oftentimes happens when someone gets either an unsolicited IOI an indication of interest from a buyer where they've been speaking with a potential buyer and they put forth some financial data, sign an NDA and put some financial data out and and that buyer puts forth a relatively broad range for which you would be interested in acquiring your firm through an indication of interest. And that happens before adviser gets engaged. And there's conversations like that the gone all the time, right? Where people will entertain, potentially someone that might be a suitor, they might sign an NDA have some discussions, and either they float a number or they write up with a formal written IOI or whatever. But usually a deal facilitation action comes after an IOU has been issued. But before a letter of intent is issued, and you as a seller go, you know, I feel like I need someone to represent our interests. And that for sure is the right time to bring in an advisor. And part of the reason for that is just purely statistical. If you try to roll your own deal after getting an IOI or an unsolicited IOI. You know, unfortunately, the stats related to that deal getting done the success of that deal getting done are very low, we're actually just the hover around 1%. So said another way, there's a 99% chance that that deal will not get done unless you engage some professionals around you to help facilitate that deal. So, you know, there's a strong business case and say, Okay, maybe if this is an offer that looks interesting enough to me, I'd be able to investigate it further. It does make good sense to bring in an advisor to help manage the relatively complex process involved with a potential buyer doing preliminary due diligence enough to get a letter of intent sent over that you could accept and sign And then much more importantly, helping to feel the diligence request or due diligence request and manage the negotiations that will take you from Letter of Intent to close.
Ryan Barnett 05:17
So fast to summarize is it just kind of functionally, if you look through an M&A process, that's typically a full process oftentimes starts with an origination. And that origination is going to be if you're working as an adviser to a buyer, that's going to be finding the companies to buy started in those initial conversations, getting an introduction calls, all the way through crafting and IOI. The loi, getting that sign getting them through a deal through due diligence through negotiation dealing with the lawyers and accountants throughout that whole process, and eventually get into a close. In this deal, facilitation, just to be extremely clear here, the finding of suitors is oftentimes already completed. And we're trying to tie it together in arrangement to kind of get in our process and almost be midway. And instead kind of getting it across the line. I think companies think, well, if I already have a buyer, and I already have a suitor, or if I already have someone that's going to buy my company, why would I need help her representation. And there's so many things that could go wrong in the process, that it makes it critical to start to help to have someone in there. So Matt, you recently went through a transaction in which we did that deal facilitation? And maybe maybe you can outline? Why why they came to us and why the sellers wanting to help in that process? And just get us go on there.
Matt Lockhart 06:57
Yeah, sure. And sort of one side, and this is this applies to firms of all shapes and sizes. Right. And I say that because in in some larger, you know, deals between larger firms, oftentimes those firms may have a corporate development department. But the first thing those development guys do is they find advisors to work with, and they encourage both sides to have advisors. So it's not about now, in our case, you know, many times we're working with, you know, medium sized businesses can be founder led businesses. But But firms that, you know, just don't have the experience, they haven't been through it before. Maybe they've been through once, but they haven't been through it multiple times. And, and having that experience of working with people who've just seen a variety of different situations, and are able to guide people together in a in a, in a productive way that is fair to both parties. is it's a it's a skill born out of experience. And, you know, where are the areas that things can go wrong? Well, that initial agreement of a letter of intent, for example, that's an area where things can can sort of get off the tracks, if you will, and or, you know, people think they're agreeing to things, but they are they haven't been, you know, really well clarified. And when things aren't well clarified, then it brings up usually more challenge moving forward, you know, post a letter of intent, then, you know, things can go wrong in in the due diligence period, even, you know, sort of what is due diligence, what is the appropriate level of due diligence in order to complete a transaction. And, and, you know, again, if people don't have experience, they don't they aren't able to sort of set that path in a in an agreeable fashion and, and, you know, for example, for a seller who hasn't been through it before, if a buyer, you know, they may be looking for information that you know, really isn't applicable to closing a deal. And it's a distraction to the seller. It takes time and takes money, you know, et cetera, et cetera. So those are just a couple of examples where things can just, again, get off the tracks where expectations are not managed. And so, you know, one of the reasons that a vast majority of deals don't get done is, is, again, around that whole idea of expectation management. And then that, you know, the last piece that I'll sort of point out is, is that, again, for sellers, who haven't been through it before, and or buyers who haven't been through it before, it can be an emotional process. And everybody, you know, there's a common agreement that there's a bunch of pieces that that look good in bringing two firms together. But if that ability to come together relationally and build trust doesn't happen, then it can all be for naught. And, and having a good advisor and a good experienced advisor in place for that facilitation process allows the relationship to to continue forward as well.
Ryan Barnett 11:14
Yeah, absolutely, the sellers still need to work with the buyers after the transaction. And if you're dealing with very, which can be emotionally charged, they don't have to be. But if you're going to really emotionally charged issue, like how much cash is going to be in the distance that directly impacts both buyer and seller. And to have some almost, you know, what we would call pushing and shoving, or some we've stakes in the ground that do oftentimes have a bit of emotion tied to them, it's great to put that emotion on that third party. Otherwise, if you're going through that, together, you might be stolen towards each other for the rest of your relationship, which could hopefully be a very, very long time, assuming that the transaction goes through and works. I think that's a really great point, Matt, on the dead, having someone else be that facilitator in those tough conversations is critical to keeping that relationship, a long term thing. Switching gears a little bit, but Mike, I think I can help me out here. What's, what's your definition of due diligence? Or maybe what are two or three categories in which a seller would expect an advisor to provide in in deal facilitation?
Mike Harvath 12:43
Yeah, well, managing the diligence process is difficult, because what a buyer is trying to do is determine they've assumed a certain level of financial profile risk associated with a deal. And they're trying to validate that what has been told up to that point is factual as it relates to legal diligence, financial diligence, and what I'll call overall business diligence and forecasting, that that risk profile holds together. And that there's no quote unquote, skeletons in the closet, about things that either haven't been disclosed by a seller or mean, not even being necessarily known to the seller. Because it's a non standard way of maybe reading their agreements, or dealing with their financials or their chart of accounts, or, you know, could be a variety of things. And so, you know, an advisor will provide advice and counsel on what that data is and how to position it and how to present it. So it's supports the ultimate goal, which is to help the buyer validate that the business is what they you've said it is. And likewise have is ability to mitigate any potential risks or unforeseen risks that could exist. You know, I often say you can't really put lipstick on a pig here, you have to just present the data factually, but how its positioned and presented and ultimately analyzed by buyer and how it's presented by the sellers on their seller, sellers advisors, is really important. Otherwise, sometimes you to Matt's point you go down this rabbit hole of the buyer on something that's not relevant, or you find that a if you're a seller, without someone that can help kind of stick handle this inquiry. You end up providing a lot of data that just is not material the transaction.
Ryan Barnett 15:07
And it's interesting you and oftentimes as a a business owner, and in a mid sized enterprise, you may be the only person that actually is aware of the transaction. And it can be very difficult to continue to run a company and sell a company at the same time. And so having someone else that can be that interface to the buyer, the seller can just run the firm without everyone else in the firm knowing it's, I think, pretty critical to and as well as just validating that due diligence, and sometimes you can technically have a place to store it, and advisors gonna have a virtual deal room. For example, in a deal facilitation role, we'll set up a virtual deal room for our seller, who will then put information up into that a portal, we review the requests, review the information that the seller is inputting to make sure it's what the buyers really looking for, and addresses the question in the best way. upload that to a secure virtual deal room for the buyer to deal with, and then help questions. If a seller is trying to do that alone. There a there could be just so many questions on what that deal diligence request looks like. Here's the list of typically hundreds of questions and be just as a is it a good advice to get the practical input from someone who is from that outside that says yeah, that isn't good ask or that is a or that's out of balance, and to have someone there. So you don't have to be that interface with the seller at all times, or with the buyer at all times. That allows you to think strategically about how you want to be interacting with the firm, it gets post merger integration strategy in your court compared to dealing with some of the Knicks and Macs that may come from that support. And without an advisor you're you can be pummeled to death with questions from the buyer, just to get through that due diligence, due diligence process. Either of you can answer this question. But if you take a look at the m&a process and that typically includes from start to finish, from origination through close there's typically a few structure that associated with that, that a fairly it's a almost industry standard, there's I think, at least the understanding that there's oftentimes going to be some kind of a fee to help going in some kind of success microman you know, when you can do this better? How do how do you expect fees to change from an advisor if you're doing deal facilitation compared to perhaps a full service M&A transaction.
Mike Harvath 17:55
I'll jump in on that one I I think when you think about origination no know if you're just doing deal facilitation. I don't want to say just because there's still a lot of work that goes into a deal facilitation. You know, some would argue a lot of the art of M&A is done in the deal facilitation. You know, the fees will be less than a full sort of a full process one that involves origination. And it's just, you know, the timing, the time to close is less, kind of beginning to end the time is less in the facilitation in a full process. Keep in mind that on origination finds a buyer if you're a seller, and for example, we're bringing you to market we've got to find the buyer that fits your profile that is in alignment with your strategy, culture and financial there's a fit of financial fit and all three pillars. In that we get to a deal that everyone can accept or getting to an LOI deal facilitation really starts at either an IOI or an LOI. So the target buyer and seller have been identified so that that origination process can take you know, 190 to 120 days typically sometimes longer depending on the situation. And in in a facilitation you're kind of carving that part off the process. So you know, typically if we get to a letter of intent, and we're doing a deal facilitation from Letter of Intent to clause takes about 90 days on average. If we have an IOI and then we're working towards deal facilitation that time could get extended by a month or so. So 120 days, but just understand deal facilitation comes typically with a little lower fee because you're If your partner or your advisor is not facilitating origination, and it comes with a shorter timeline sort of beginning to end of engagement.
Ryan Barnett 20:11
Now that makes sense. And then Matt, I mean, we just went through one of these. And if you're to look back, was there anything that you wish would have done perhaps differently, or the situation would have changed, that would have, that you could give future sellers advice to?
Matt Lockhart 20:28
Well, in this particular case, the parties had executed the letter of intent. Prior to either us being engaged or the we were representing the seller and, and the buyer are actually engaged. Another advisor, very reputable advisor that we've worked with many times in the past. And, and the very first thing that I and and the other representative said was, boy, we wish we would have gotten engaged before they wrote this LOI. Because, you know, there were just some gaps in it. Right. And, and, and so I think that that is the very, you know, first piece of advice, you know, I would just encourage people to, to, you know, we've talked about this before, having a relationship with an advisor, regardless of when you may be taking action, either on the buy side or on the sell side, is, is worthwhile. Because you need to build that bridge, you need to build that understanding, quite honestly, I and I tell, you know, our, our clients this, and, you know, even if they're, even if they're, they're not engaged actively, right now, I say, call me with any questions that you have, because we're happy to, you know, provide our perspective and, and give some guidance, even if we're not fully engaged. And that can be, you know, super helpful. And so, I think that, I think that that is an important piece is just having that relationship. And, you know, in this case, they, they very well could have called and we could have, you know, taken a look and sort of given some guidance and, and made the made the process a bit easier. You know, again, the fact that there that each side had advisors in place, it went relatively smoothly after sort of Rhian doing some realignment and some realignment that that needed to be done, because the the initial loi just wasn't gonna, wasn't really going to work. And so it's, each, each one of these is its own little story, and they have their own nuances. But the earlier that you can engage, you know, with an advisor, the better and then, you know, having an open discussion about where are sort of the, the risk points in a deal. That, yeah, that really need to be, you know, cared for. I think that the other piece it to it is, is, is there's other, you know, there's other professionals that need to be involved, lawyers need to be involved. Accountants need to be involved. And so, you know, understanding who the entire deal team is going to be, and, and being able to provide some guidance towards to, who are good, reputable professionals to work with is is other areas that, you know, in this case, we were able to assist with them. And I think that that's a much in in most often cases, you know, making sure that it's the right deal team, for the right deal is super important.
Ryan Barnett 24:10
Yeah, thanks, Matt. And that's it's about agreeing to call it an experience I if I heard that right. Engage in advisor soon. So if you have an IOI in hand, that helps that advisor and I don't think we touched about it today, but we've touched on a lot. Getting an independent third party valuation is critical in that so before you sign something that says this is what your firm was worth and helps to get that third party say this is really what your firm was worth and what the market is willing to bear. So the other thing to keep in mind in loi is are they are non binding in nature. So there can be moods but it's movements in the loi, but I think they're hard and It's even though something may be non binding in nature, does it mean that it wasn't agreed upon, in a handshake carries a lot of weight and a lot of these deals. So we're not a fan of retreating. But if you really came in with an LOI, that is unfeasible that there could be a case in which your bot your advisor tells you this isn't the right deal. So there certainly could be the case. And I would say that there's a lot of reshaping deals when an advisor is in play compared to not being in play. Mike, I heard you talk a little bit about fees and understanding that those fees are going to be a little bit different. Your timeframes might be accelerated in deal facilitation, because finding a buyer and seller certainly takes time without that. Mike, I also heard you talk about the importance of due diligence and making sure that there's an interface for for completing due diligence that helps align the buyers objectives of finding the right material in the deal while keeping the the right parties focused throughout. And then ultimately, there are hundreds of things to negotiate in the deal. And I think that's something we didn't talk about a ton here. But if you as a seller or Altera loan trying to negotiate every every sticking point from it could be working capital, it could be deal terms, it could be an earnout, it can be employee contracts, it can be so many different things, including 5060 7080 pages of legal work. Sometimes that adviser just needs to be the logjam to the legal process. And it's critical to have someone there that that understands how the parties work together to ultimately get through that lawyer against lawyer alone. Oftentimes, we'll get stuck. So I think that's another part where deal facilitation starts to become a critical path to get a new deal done. Matt and Mikel, I'll turn it back to you any closing thoughts?
Matt Lockhart 27:17
Well, I think that was a great summary, Ryan. And, and we're, again, we're super excited about the year to come. We, we talked a bit about 23 being a little bit of a slower year. And we fully expect that they're 24 is going to be a much busier year. And so there will be more and more options for providing, you know, deal facilitation. Hopefully, the podcast resonated with our listeners that it is super important. And then obviously more and more opportunities to provide that full service front to back m&a, origination and advisory to the close. So we're excited about the year to come and, and, and yeah, where do we go from here, Mike?
Mike Harvath 28:12
Well, I think we're all know it's time to tie revenue on it to make it a great week. Have a great year. And look forward to talking to you soon.