Alex Loukas, GrowthPoint Managing Director, describes the three phases of the M&A process and typically how long they can take.
“Clients and potential clients often come to us and say:
- “What does a process look like?”
- “How long does it take?”
- “Who should be involved?”
- “What potential investors or acquirers are going to be interested in my business?”
- “What are the overall expectations that we should have going in to working with GrowthPoint?”
The way I like to describe it is we look at a process in three phases.
The first phase is a phase that we call the Data Prep phase or the Diligence Preparation phase. What that entails is GrowthPoint working with our clients and building all the financial materials, the model, the customer data. We do all sorts of analysis on your business to prepare you and to prepare the potential investors or acquirers for the questions that they will have.
So, preparing financials is key. In that first Data Prep phase we prepare the technology and the product descriptions, the strategy, why you might be interesting, how you’re differentiated, what’s the product market fit that you’ve executed on and differentiated yourselves in the market of competitors where you sit. It’s building the data room. Investors and acquirers generally have a set of business diligence and commercial diligence questions that we want to prepare you for, and we act as friendly investors or acquirers and practice how we should answer certain questions so that we are prepared when we begin a process. We build company overviews and management presentations, teasers, all of this material creation, financials, forecast, strategy, practice. This happens in the first phase that we call the Data Prep phase, and that generally takes around four weeks for us to prepare with our clients.
The second phase of the process is what we call the Go to Market phase. That phase is where GrowthPoint, on your behalf, begins reaching out to potential investors or acquirers. We begin having conversations, initial discussions on why you’re an interesting business. What’s the strategic fit with the acquirer, why the value should be maximized and generally, that process develops from initial conversations with GrowthPoint, second calls, signing of NDAs, exposing an initial data room, consistently sharing a little bit more information along the way, while at the same time understanding which investors are garnering most interest, which acquirers are spending more time digesting the data in the data room, spending time with GrowthPoint and slowly we then get the management team of our clients to meet these investors, to meet the acquirers.
And if you think of a sales funnel, you know that funnel will start broad and slowly begin to work its way down into a core group of interested investors or acquirers. Along the tail end of that phase we receive indications of interest. These parties will say, I’m interested in the business at X valuation with X terms. And again, it’s another stage where we can narrow down the funnel and work towards a final bid. That second Go to Market phase generally lasts 2 to 3 months, it’s a little bit elastic. It depends on scheduling, it depends on process and interested parties, but generally you can expect 2 to 3 months for that Go to Market phase.
The third phase is what we like to call the Close phase. That’s generally set. It’s anywhere from 30 to 60 days, typically, where the investors or acquirers will bring in their third-party diligence. They’ll bring in legal diligence, so counsel to ask legal questions. They’ll bring in financial and accounting diligence, they’ll bring in technology diligence. They’ll do more business and commercial diligence along the way and ultimately leading to a purchase agreement that’s negotiated, finalized, closed, money is wired and that closes the process. So, on average, you should expect a process from start to finish to be around six months consisting of three phases Data Prep phase, Go to Market, Closing phase.”