Use analytics in the sales process
When faced with widening interest from more diverse buyer pools — from PE to cross-sector corporates — sellers may benefit by leveraging analytics in the negotiation process. Advanced analytics can produce greater insight for buyers on the historical and future performance of a business while allowing sellers to tailor and strengthen their value story for different buyers. Only 39% of sellers say they used analytics during buyer negotiations, but 52% say it’s a step they should have taken. In doing so, sellers and buyers alike can avoid surprises leading to loss of value or cause the deal to fail.
Further, companies that use analytics in negotiations are three times more likely to achieve a higher sales price and increase valuation in the remaining business, as well as to close the deal faster, than those that do not. Additionally, use of analytics during negotiations can reduce the workload of the management team by anticipating buyer’s questions before they arise. This success can be attributed to providing buyers with the appropriate level of granular data that both satisfies their diligence requests and supports the value story. Also, use of analytics minimizes surprises and avoids additional time spent on negotiations relative to matters the company should have been aware of at the start of diligence.
Build value through stand-alone operating models
In carve-outs, buyers may recognize greater value by presenting a stand-alone operating model. In fact, sellers that present a business as a stand-alone are twice as likely to achieve a higher price and complete their deal faster than those electing not to do so. Buyers have confidence in the operating model and know that the business has been properly prepared for sale, with a comprehensive separation plan. Further, significant time is saved post-signing by not having to take these steps, long ago completed. This is critical to PE — 51% of PE buyers say it’s required for them to stay in a purchase process for corporate assets — as they often do not have the infrastructure or personnel to support a stand-alone business unless there is a match with an existing portfolio company.
Align on deal perimeter
Companies often ask us, “The deal perimeter simply reflects the business — why are we spending so much time on this?” The business to be divested is often defined differently by executives and functions within the organization. Too often, deal models are prepared utilizing historically generated system data that contains improperly allocated costs, excludes certain costs and does not reflect the business to be ultimately transferred. Accordingly, alignment on the deal perimeter across all functional areas, with a clear line of site to the deal model for each buyer, is critical.
Leadership alignment around the deal perimeter — across RemainCo and DivestCo — is essential, but this is a challenge for 63% of companies. One common deal perimeter issue for sellers is deciding on the disposition of commingled manufacturing and production facilities.
Sellers can improve alignment in deal perimeters by involving leadership early in the portfolio management process with the right data to inform decision-making.
Leading practices in the negotiation process