International Deal Making – Assisting Acquirers

Osama RifaiManaging Partner, Rifai & Partners

QUESTION ONE – In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?

A special feature of the Swiss market is the fact that there is hardly any financial information available for small and medium-sized or non-listed companies. There­fore, it solely depends on the ‘goodwill’ of the owner(s) or the board of said targets to disclose specific insights about the company.

Company owners in Switzerland value the preservation of workplaces and the continuity of the company, as well as money. This must be respected. That requires a well-tailored and well-communicated approach, as well as a confidence-building attitude from the potential buyer. The elements to be considered are:

  • the first contact is very decisive, and, in this context, it is advisable to thoroughly evaluate whether it makes more sense to directly or indirectly approach the owner. Often there is only one chance to make sure that the door is opened for talks.
  • the ‘story’ of the acquisition is also key. What is the buyer’s intention once the target is acquired, what are the plans for the future strategic development of sites and products, jobs and branding.
  • a further ingredient for a successful acquisition is the attitude, making sure that one is the equal of each other and plausibly communicating a win-win philoso­phy. This not only includes the new buyer or owner of the target company but the whole team he or she has appointed for the transaction.
  • Should the target company be integrated, once acquired, the post-merger inte­gration plan is paramount. The roadmap to success means that people must be included and taken on board. Skilled and experienced employees are really sought after ‘assets’ in Switzerland and they will make the difference between a successful or not so successful transaction. Communication, authenticity and credibility of management are drivers in this phase of the M&A process and should be prepared in advance. The labour market in Switzerland offers enough opportunities for good people and everything should be done to keep them.

QUESTION TWO – How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?

Due diligence is a very critical part of the transaction, especially for the seller. A lot is disclosed, more people may be involved, and it can be time-consuming and expensive. That means for a buyer entering the local market and wanting to buy a company, it is more than recommendable to structure the due diligence phase accordingly to reduce the risks as much as possible, for both seller and buyer.

The scope of due diligence must be clearly defined around such areas as customer or market due diligence, that may be carried out after signing or closing, or by third parties. This leads to two subsequent steps. What technical skills are required by the due diligence team, and which skills are insourced for that phase.

Depending on the buyer’s experience with such transactions, it is recommended to appoint an external due diligence manager who will coach and monitor the whole process. This is not only a question of additional resources, but a way to better manage critical parts of the due diligence phase.

In Switzerland, the level of documentation is often high on the seller’s side. Nec­essary documents are usually available, data rooms comprehensively documented and, in general, updated information available. This significantly reduces the risk for buyers. Nevertheless, enough time and money should be allocated.

QUESTION THREE – Once an acquisition is agreed, how would you structure the contractual phase and what is key about the post-merger-integration phase?

Depending on the level of planned integration, there are some key elements to be considered and proactively managed during a PMI phase.

It starts and ends with communication. An acquisition is normally a critical project for all parties involved, including employees and management, clients and sup­pliers of the acquired company, and even for the buyer and its staff. It is not only a question of providing ongoing information to all relevant internal and external addressees during the PMI phase, but also the credibility and relevance of the information provided. It makes sense to prepare the communication strategy during the acquisition phase and to have people involved from both sides. Communication in that part of a transaction has top priority and must be managed at the executive level.

Another important topic is the appointment of key people. Sometimes the buyer is happy to keep all people on board to guarantee a smooth transition and continuous operation. But, even in such an unproblematic context, it is key to confirm the people in charge.

It is a different story when the buyer already has an operation in Switzerland and intends to merge both entities. In this case, the topic becomes a value driver or destroyer if not properly managed.

An excellent instrument to manage such a phase is a slightly modified Balanced Scorecard approach or, simply, an adequate dashboard. This allows data to be condensed for a top-level audience and as a decision base for management; it also allows the organisation to split the dashboard into functional and other goals and duties.

Tips for completing a successful cross-border acquisition

Make sure that enough resources are allocated to the cross-border transaction. Often, such projects are handled in parallel to daily duties. Cross-border transactions do absorb a lot in terms of management attention and financial resources and represent a major burden for both the buying and selling entity.

Attitude is a key ingredient for success in such deals. Showing a keen interest in a mutually beneficial outcome, win-win, to use another common term, is a decisive factor during negoti­ations, especially when negotiating with owners of small and medium-sized companies.

An efficient post-merger integration is para­mount, as it means the buyer has to move people in the right direction and transform a business case into something real, that should be successful and rewarding.

This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.