Andrew Greta's Business Development Blog

A solid deal process is roadmap for executing good transactions quickly and effectively while providing the framework needed to eliminate bad deals affirmatively. While some may feel that following any kind of process is cumbersome and takes the creativity out of deal making, the opposite is true. A good deal process provides structure and tollgates that can help move deals along faster and keep teams focused to eliminate red herring distractions. It also frees up the deal team to spend meaningful mental energy on the *real* sources of creativity and business development value – problem solving, overcoming obstacles, making strategic connections that others don’t see, and designing elegant structures to reach value-creating solutions.

The process starts out with strategy and planning. Some BD departments run the strategic plan itself or participate in this work. Other times it’s a hand-down from a visionary leader, output from a consultant, or the product of an annual corporate-wide strategic process. Whatever the origins, new “inorganic” growth paths (i.e. opportunities outside of the current core business) quickly break down into a Buy, Build, or Partner decision. Typically Build paths fall outside of the BD mandate and are taken up by the new product introduction process (NPI) with the appropriate departments contributing to the effort.

Buy and Partner decisions are the bread and butter of business development. From here, it’s up to the orchestrators of the deal team to marshal resources through the key stages. A typical proactive process includes the following steps:

Target Identification: Teams canvass the landscape of potential acquisition or partnership candidates, assessing size, strategic fit, and opportunity to do deals. Targets are prioritized based on a variety of factors which vary with the circumstances and rationale of each deal.

Originate: The target is approached and engaged in initial discussions. Typically non-disclosure agreements are executed at this time to enable greater information sharing.

Value: Once initial business and financial information is collected, a preliminary model is developed informing the internal team on viable bidding ranges, economic inputs, and business risks. Typically, a letter of intent (LOI) is issued at this tollgate indicating a preliminary range and deal structure with certain carve-outs or contingencies for items not fully assessed on a preliminary basis.

Due Diligence: If the LOI is accepted, it’s time to dig into the records, financials, operations, and assets of the target in depth to confirm assumptions and uncover deal-impacting issues. Due diligence can range from simple paper contract reviews when buying a portfolio of loans for example, to full site visits, environmental audits, systems reviews, and personnel assessments for large operating businesses.

Structure: Once due diligence is complete, revisions are made to the offer and – assuming no deal-killing items are discovered – a structure and terms are proposed.

Negotiation: Parties negotiate the final terms of the deal. Typically, the LOI terms would be codified into legal-eze, and any open items addressed. Contingencies like anti-trust reviews and shareholder approvals are identified and documents are signed.

Close: Assuming contingencies are met, pre-identified purchase-price adjustments may be made, funds change hands, and the seller “hands over the keys”.

Each step in the process requires different skills, competencies, and information. From what I’ve seen, it would be possible to devote an entire book or career to fully capturing and mastering the complexity of each step. We won’t attempt to boil the ocean here, but future posts will cover and discuss the individual steps in greater detail.

Labels: Business Development Basics

posted by Andrew Greta  # 10:02 AM