Buyers & Sellers

Sellers are typically parent companies, founder shareholders, individual investors (e.g. business angels), financial sponsors (i.e. investment firms such as private equity firms, venture capital firms and institutional investors) or management teams. 

Buyers are typically companies (e.g. competitors of the target or companies that provide complementary or related products or services), investors (including investment firms and high-net-worth individuals) or management teams (either the target’s management team or an external management team).

Alternatively, a buyer may buy all the shares of a public company (i.e. a company whose shares are listed on a stock exchange, meaning the “sellers” are its shareholders) and subsequently convert that public company back into a private company (this is known as a “take private”). A take private may be a more attractive option when the equity capital markets drop/are more volatile, as the shares may become available at a price that is lower than the real value of the target company.

Business angels: business angels (or “angel investors”) are wealthy individuals who invest their personal income in early-stage businesses in exchange for equity. Working with a business angel can be especially beneficial for a business if that business angel has ample knowledge of, and experience working in, that business’ industry.

Institutional investors: institutions with specialist knowledge that buy, sell and manage investment securities in large quantities on behalf of others. Examples include pension funds, insurance companies and hedge funds.

Private equity firms: private equity firms generally invest in target businesses that have high growth potential and are not listed on a stock exchange (although private equity firms might invest in public companies with the intention of “taking them private”, meaning such companies would no longer be listed on a stock exchange). They will usually pool money from external investors into what is known as a “fund”, then use the money in that fund – as well as money borrowed from lenders – to finance their acquisition of, or investment into, a range of businesses. 

Venture capital firms: like private equity firms, venture capital firms aggregate funds from institutional investors and private individuals, then aim to buy or invest in businesses and subsequently sell at a profit. However, venture capital firms tend to focus on earlier stage investee businesses (e.g. start-ups and scale-ups) and invest in small equity stakes, whereas private equity firms typically invest in more mature businesses and often invest in much larger stakes.

Lenders

The vast majority of large deals are financed, at least in part, by debt. When looking to raise debt to finance a deal, there may be a range of options available for borrowers, depending on their credit rating, track record, commercial intentions, ability to offer security, existing relationships with lenders and more. For example, a lender may provide a bilateral loan (i.e. where one lender lends to one borrower), or – where larger amounts of debt are required – borrowers may require a syndicated loan. 

Syndicated loan: where borrowers need to raise large amounts of money, lenders may “syndicate” (i.e. group together) and collectively provide the required capital (hence the term “syndicated loan”). Doing so enables lenders to spread the risk and collectively lend amounts that each individual lender may be prohibited from lending by their internal credit committees. Usually a syndicate of lenders will appoint one of the participants as a “lead arranger” or “manager”, and they will be responsible for administering the loan on behalf of the other syndicate members (each of whom will receive a share of the interest payments).

Investment banks 

Investment banks typically advise and assist corporations and public bodies looking to raise money. In a deal scenario, they may help to arrange loans for buyers, or agree in advance to do so if their client is a prospective buyer and is later chosen as the preferred bidder. 

More generally, the role of investment banks includes: connecting clients to potential investors; promoting and facilitating the issue of shares or bonds, for instance through helping to market and price the issues; and analysing the financial state of companies to help inform their valuations and identify any financial risks. Investment banks also trade securities such as bonds, shares and derivatives on behalf of clients.

Lawyers

On a deal, lawyers typically carry out legal due diligence, draft and negotiate the key documents, and project manage the signing, completion and post-completion processes.

Accountants

Accountants may be brought in for a range of reasons, for example to assist with financial and tax-related due diligence, to verify a target’s financial accounts, to calculate the figures that need to go into transactional documents, and to help with business valuation/price-determination mechanisms.

Regulators

The parties must usually obtain clearance from competition (or “anti-trust”) authorities before a deal can complete; clearance may be refused or granted subject to certain conditions, depending on whether the proposed transaction could result in a “substantial lessening of competition” in the relevant market. The parties may also need to apply for clearances or approvals from HMRC, whilst particular types of deals (e.g. certain deals in the healthcare and finance sectors) may require additional approvals from specialist bodies.

Consultants, experts and specialists

Consultants, experts and specialists might also need to be brought in to advise on (or assess) specific aspects of a deal. This could include environmental experts brought in to check whether a target’s factories have been generating illegal levels of pollution, consultants tasked with assessing the potential social impact of a deal, and public relations consultants to advise on how best to promote the proposed deal to regulators and the public (and assess any potential reputational damage that might occur).