At Cogent Growth Partners, we do a lot of things differently than other buy-side M&A firms and independent buyers do it. Most of the time, we take an opposite approach.
For instance, long before we get to the numbers, we look at opportunity and fit, two deal components that are critical to long-term success. This “Opportunity First” approach is one Cogent difference. We ask the questions most business owners don’t think about until much later:
- Will an operational merger of these two companies benefit both sides?
- Does it make sense to put these two cultures together?
- How likely are customers and employees to stay post-transaction?
We make sure all of these issues are a “go” before we use our proprietary Transaction Analysis Model™ (TAM) to determine what the company under consideration is worth. The TAM, another Cogent differentiator, also evaluates a number of deal structures to determine which one (or two) will best meet the objectives of the buyer and the seller. All of this work culminates in the Letter of Intent (LOI).
Other M&A advisories kickoff their process with the LOI or a very high-level indication of interest (IOI) and then proceed to work through pricing and deal modeling. Beginning with the LOI or IOI usually means that original price and deal structure will be considerably different than the transaction’s price and structure at closing. In many cases, the prices and deal structures initially proposed are so far off that the deal never happens.
The TAM allows us to base our projected purchase prices and deal structures on a measured view of reality rather than the subjective expectations of buyers and sellers. The objective view the TAM puts forth incents both sides to want to reach an agreement. We believe that’s why we close more IT services deals post-LOI than anyone else in the space.
Consider the scenario when two owners of IT services businesses talk directly to each other about a potential merger or acquisition. They are often hesitant, and for good reason, to turn over detailed operational and financial information to a potential acquirer when there is not a deal on the table for consideration. Many times, the potential buyer is a competitor. However, if the potential seller doesn’t turn over the data, the deal can end before an offer could be made.
Redacted disclosure beats no disclosure at all
As a trusted advisor, Cogent is more likely to convince the seller to comply with the buyer’s information requests. Sellers know that, even with a customary non-disclosure in place, we will redact information about key customers and employees to prevent the disclosure of competitively sensitive information. Including redactions, our documents accurately describe the opportunity and its value for the buyer. We will model multiple pricing and deal structures before arriving at the one or two scenarios most likely to be agreeable to the buyer and the seller. By completing the TAM process early in the discussion, we can arrive at a value-based number and optimal deal structure for the transaction – one that will incent both sides to move forward.
Without having a realistic, data-based price and deal structure, neither the buyer nor the seller has the information needed to make an informed decision to go forward – or not. As a result, deals that shouldn’t have been considered often proceed and others die a premature death. Cogent’s TAM helps both parties accurately see the opportunity in front of them and then make an informed decision about whether to pursue the deal or not.
As a matter of fact, Cogent utilizes this same TAM development process to perform our Market Valuation Analysis™ (MVA) services. The MVA assesses the current market value of a company when there is no buyer and the business has a need for a fair market value or for internal company transaction. For more information about Cogent’s MVA, read our blog post on the topic.
About Cogent Growth Partners
Cogent Growth Partners, LLC, a buy-side intermediary for mergers and acquisitions, taps into the growth opportunities found in America’s IT businesses. Cogent has brought buyers and sellers together for over a decade, closing more than 135 deals, and still counting. Cogent accelerates the M&A timeline using a set of proprietary tools and processes that enable buyers and sellers to stay focused on running their respective businesses, while Cogent does the heavy lifting. Anyone who wants to know why Cogent is different, need look no further than our business card: “Providing Transaction Therapy™ for IT Business Owners Since 2010.” For more information on M&A in the IT Services sector and buy-side intermediary services, please visit www.cogentmergers.com or email us at [email protected], or call 678-820-5288.