Mergers & Acquisitions
The transaction is decided before the first offer arrives
Eiger, Mönch and Jungfrau · Grindelwald
The shape of the practice
We advise controlling shareholders of mid-sized companies on the sale and purchase of equity interests. The work begins long before the first conversation with a buyer, and that is where most of the value is created
Typical engagements
- Sale of a controlling interest
- Acquisitions and sector consolidation
- Pre-sale preparation
- Price and payment structuring
- Normalisation of competing bids
- Negotiation of the definitive agreement
Preparation
Most of the value of a transaction is created in the twenty-four months preceding it. Documentation of earnings adjustments, mapping of contingencies, review of the personal guarantees given by the controlling shareholder, organisation of contracts and reduction of founder dependence
Process design
We build the buyer list so as to keep strategic and financial buyers at the same table. The comparison between the two is what reveals how much synergy exists, and it cannot be obtained any other way
Structure and negotiation
Price is not a number, it is a structure. Net debt, working capital, contingent consideration, holdbacks and guarantees determine how much the seller actually receives, and each line is negotiated separately
Closing
Management through to signing and closing, including the antitrust filing where required and the conduct required between the two dates
The process
How the work runs, phase by phase
Sell-side
Sale of a controlling interest
A competitive process run to maximise tension between buyers, not to find a buyer
Diagnosis and normalisation
Review of earnings over the last three financial years, identification and documentation of each adjustment, determination of net debt and the reference working capital, and a survey of the personal guarantees given by the controlling shareholder
Investment case and materials
Construction of the equity story from what actually sustains the margin, with a financial model and a two-tier presentation: one anonymous and one complete
Buyer list and outreach
Construction of the list with strategic and financial buyers, approved name by name by the client. Outreach in waves, never all at once, to preserve control of information
Confidentiality agreement and materials
Execution of the agreement, release of the full materials and question sessions run by us, not by the client's team
Non-binding offers
Received simultaneously, on a single date, with every offer normalised to cash at closing before any comparison
Due diligence and binding offer
Data room with a protocol for sensitive information, management of the timetable and of questions, and negotiation of the binding offer
Contract and closing
Specification of the economic terms to counsel, antitrust filing where required, and management through to settlement and release of guarantees
Buy-side
Acquisitions and consolidation
A process of origination and discipline, in which most of the value lies in turning down the wrong target
Acquisition thesis
Definition of what the acquisition must deliver: capacity, geography, customer base, technology or margin consolidation. Without that definition, every target looks reasonable
Sector map
Survey of the universe of targets, with size, control, corporate situation and likely willingness to sell. It includes those not for sale, which tend to be the best
Approach
Contact made by us, protecting the client's name until the appropriate moment. Approaching a company that is not for sale takes time and does not tolerate haste
Valuation and walk-away price
Construction of the maximum value the transaction can support, including identifiable synergies and the buyer's non-dilution ceiling. The limit is set before negotiating, not during
Due diligence
Coordination of financial, legal and operational due diligence, focused on what can change the price rather than what merely describes the company
Negotiation and integration
Negotiation of price and structure, and design of the first hundred days plan before signing, not after
The questions that start the work
Does the seller want to exit or to stay?
It defines the entire structure, and no multiple compensates for the wrong answer
How much more is the company worth to this buyer?
It is the measure of synergy, and of the negotiating margin
How much cash does each offer deliver at closing?
The offer with the highest headline price often delivers less certain money
From price to cash
Enterprise value is not what the seller receives
Between the value placed on the company and the money that reaches the seller at closing there are at least five negotiable lines. Each is argued separately, and together they usually outweigh the gap between two competing multiples
Net debt
Loans and borrowings less cash at the reference date. The fight is over what counts as cash: restricted investments, cash trapped in subsidiaries and judicial deposits
Working capital peg
The normal level of receivables, inventory and payables, set on a twelve-month average. Every real below the peg comes off the price, every real above goes back into it
Debt-like items
Items the buyer treats as debt: declared but unpaid dividends, tax instalment programmes, labour provisions, leases and transaction bonuses
Escrow and earnout
The amount held in escrow to cover indemnities and the amount conditional on future targets. This money depends on governance and drafting, not only on performance
Price and payment mechanisms
Every mechanism shifts risk from one side to the other
| Mechanism | How it works | Protects | What to negotiate |
|---|---|---|---|
| Completion accounts | Provisional price at signing, adjusted to the actual balance sheet on the closing date | Buyer | Accounting policies, determination period and expert for disputes |
| Locked box | Price fixed on an earlier balance sheet, with no value leakage allowed until closing | Seller | Permitted leakage and a return on cash generated in the period |
| Earnout | Part of the price paid against revenue or earnings targets after closing | Buyer | Metric, control of management in the period, accounting rules and acceleration on a sale |
| Escrow | Part of the price held in an escrow account for a set period to cover indemnities | Buyer | Percentage, term, staged release and interest |
| Vendor note | Part of the price financed by the seller, with interest and security | Buyer | Subordination to bank debt, collateral and acceleration events |
| Minority rollover | Seller keeps or reinvests a stake in the acquired company | Both | Tag-along, exit option and pricing of the second tranche |
| W&I insurance | A policy covering breaches of representations and warranties in place of escrow | Seller | Policy exclusions, retention and premium cost |
The definitive agreement
Where the agreed price is lost after signing
Representations and warranties
The seller states the condition of the company, and every untrue statement gives rise to indemnity. The buyer’s prior knowledge must be stated expressly to limit exposure
Indemnity limits
A cap as a percentage of price, a de minimis per claim, an aggregate basket and survival periods by type of risk, with tax and labour handled separately
Specific indemnities
Risks identified in due diligence are carved out of the general indemnity and treated on their own: a price provision, a dedicated escrow or uncapped indemnity
Conditions precedent
CADE antitrust approval when one group has at least R$750 million and another at least R$75 million in Brazilian revenue, plus consents from lenders and counterparties with change-of-control clauses
Interim covenants
What the company may and may not do until closing, without handing management to the buyer before antitrust clearance
Non-compete and retention
Term, territory and scope of the non-compete, and the terms on which the seller stays in management, usually linked to the earnout
The buyer universe
Each type of buyer pays for something different
Domestic strategic
Pays for cost and revenue synergies, and tends to pay more upfront when the overlap is large
Foreign strategic
Pays for access to a market it does not yet have, with pricing in hard currency and stricter compliance requirements
Private equity
Pays for the ability to grow and be sold again, and uses leverage, seller rollover and earnouts
Sector consolidator
Pays for scale and multiple arbitrage, and tends to standardise contracts and integration
Family holding and family office
Pays for cash-flow predictability and a long horizon, with a shorter process and less structure
Management and minority shareholders
Buys with seller financing and staged pricing, preserving continuity
The other practices
Debt Capital Markets
Structuring of financing, from bilateral bank credit to capital markets issuance
Explore the practiceSpecial Situations
Distressed assets, liability restructuring and economic and financial viability reports
Explore the practiceIPO & Tender Offers
Initial public offerings, follow-on offerings and tender offers, including delisting tender offers
Explore the practiceSpeak with the responsible partner
There is no screening. The conversation begins and ends with the person running the transaction