* The challenge
Capital assets can generate vastly different cash flows in different hands. This can lead to large differences between valuations by potential buyers. The importance of finding the right buyer for a complete company or a specific business asset cannot be overstated. It often dwarfs the impact of other valuation inputs (e.g. cost of capital estimates).
For obvious competitive reasons, potential buyers do not fully disclose their business strategies to the public. These strategies frequently change as well. The real financial impact of a specific acquisition remains unclear. Who should be on the shortlist isn’t the main problem. Correctly ranking potential buyers is a bigger challenge.
One way to deal with this information asymmetry is to simply approach everyone on the shortlist and organise a controlled auction of some sort. If the rules are adequate (and all participants adhere to these rules), this takes care of the ranking. At the end of the auction the seller can enter negotiations with the most promising buyer.
At that stage the seller has already provided certain information to the complete shortlist. The aforementioned rules (including non-disclosure provisions) aim to limit the risks for the seller of providing the information. The simple fact that the company is for sale will, however, inevitably change the mindset and decision making of people/companies on the short list. It can create a competitive advantage. Consciously or unconsciously.
This isn’t a problem if the seller manages to actually close the deal within a reasonable period of time. It could become a real problem if the process stops or slows down for whatever reason.
Collecting information for yourself and providing information to others is a balancing act. It’s important to remain flexible and not walk into a dead-end street.
* Our approach
KC Corporate Finance therefore specialises in a flexible step by step discovery process. At the start we remain humble about our ability to correctly rank the potential buyers on the short list. The information asymmetry described above is real: You don’t know what you don’t know. After analysing the specific value proposition of our client’s company and the industry as a whole, we start talking to the most promising buyer. At that point in time. This contact often provides important new information. It can change our analysis of the company. It can lengthen or shorten the shortlist.
From there we cautiously progress to other candidates. Keeping in very close contact with our client. The quality of a specific candidate determines the quality and quantity of the information we provide. Every new contact is a learning moment. Each time the profile of the ideal buyer becomes more clear. At a certain point we can, if necessary, adjust our valuation of the company and continue our talks with a (very) small subset of candidates.
Eventually the conversations with one of these candidates will reach a stage that justifies exclusivity. This hopefully leads to (the outline of) a deal, subject to due diligence.
Depending on the outcome of the due diligence phase the deal will be closed, sometimes after certain adjustments, or aborted.
Trusted Advisor
The fact that KC Corporate Finance only works for private sellers is a distinguishing characteristic. Our clients know we do not accept M&A business from (often very powerful) buyers. There are no conflicts of interest and our fee structure provides the correct incentives to make the deal a success for our client and for us.
Buyers also respect our approach because it guarantees that we, as an intermediary, will never favour one buyer over another. It guarantees a level playing field for buyers. It also makes it easier for them to openly discuss their (acquisition) strategy.
* After the deal
We feel obliged to extend our assistance beyond the deal. We are happy to share our expertise in the field of wealth management with our clients. In a non-transactional, analytical context.
In many cases the services of the whole KC Alliance will also be of great practical use after the deal: