Management of Buy-side/Sell-side expectations when finalizing the SPA (Sale and Purchase Agreement) in a cross-border transaction on a privately-owned company

When a Buy-side mandate is given to manage the whole acquisition process of a target company which has already been selected by the prospective buyer (mandatory) but where a strong and evident culture barrier needs to be overcome, it is important from the outset for both sides to define their expectations for a successful transaction, in order to establish the foundation for future mutual benefits.

At ValleyRoad Capital, we very much take into consideration the existing cultural barriers when doing in business between different countries, even in Europe, from Nordic Countries to Central and to South of Europe. In particular, one will find huge differences in the understanding of value creation before and after merger or acquisition transactions.

From the beginning, it is important to inform the sell-side that their legal advisor (it is strongly recommended to use an experienced law firm which can handle corporate finance and private equity deals) should be hired for the transaction in order to ensure that the terms and conditions of the term sheet are properly understood by the seller and to assist him in clearly defining the representations and warranties.

To finalize the purchase price and to reflect the outcome of the price negotiation, try to be creative when it comes to defining the sale price of the target company. It is crucial to explain the basis of the evaluation methodology. The mission for the buy-side advisor is to integrate a constructive scenario in the negotiations, which motivates both parties and creates involvement from both management sides. One can for example introduce future reachable EBITDA targets as an extra additional payment mechanism.

Last but not least, it is important to define the timing for closing: the best time is usually during the morning hours so you can reach banks and government offices if it is needed…and also try to avoid Fridays, when correspondents are usually starting to wind-down for the weekend !

You also have to inform the buy-side, from the beginning, of the expected quality and quantity of documents/lists for all needed appendices, which need to be added to the SPA :

– Loan agreements (company and personal loans)
– Building lease agreement
– Etc…

At the end, we (ValleyRoad Capital) discover through each different M&A transaction that if you don’t manage the expectations on both sides as well as emotions, you will not close the deal.