Preemptive M&A Strikes (Cont'd)

In the last few months, buyers have been persuading sellers to engage in bilateral discussions rather than launch auctions at a frequency I cannot remember seeing in my career. There appears to be a structural shift in M&A towards pre-emption and bilateral deals.

One factor resides in the maturation of corporate strategy over the last two decades, shaped by hard lessons from value-destructive forays into wild adjacencies and opportunistic shopping. Having reassessed their core competencies, acquirors now possess forensic clarity on ‘must-own’ assets. When a target sits on a top-10 list, it makes little sense to wait for a process to begin.

Strategic lucidity, supported by trusted M&A advice, brings confidence to act as a price setter rather than participate in a market price discovery process. Besides, early engagement offers the opportunity to influence the perimeter of the assets for sale before it is fixed. In addition, this approach gives a buyer a chance to conduct due diligence on commercially sensitive data away from competitors. Critically, a preempting party hedges itself against the vagaries of auctions, where emotions can distort rational outcomes. Why play the lottery when one can buy a winning ticket?

And finally, an attempt to preempt mitigates the risk of a competitor acting first. As Pink Floyd sings in ’Time’ (1973): ‘No one told you when to run/You missed the starting gun.’

A preempting party must, however, be prepared to pay a premium that reflects these benefits and compensates the seller for foregoing an auction. For the seller, the proposal could be equally compelling. In exchange for skipping the high-stakes, time-consuming and disruptive drama of a broader process, it receives an attractive price and engages in a process designed to provide speed and certainty.

The art of preemption lies not just in the 'why,' but in the ‘how’ and 'when.' A first window is the long-range shot, a move made 12 to 18 months out, or even before the seller contemplates a transaction. Acquiring firms often underestimate the wealth of external data available to prepare for such a tactical move. Insights from consultants, former executives, investment bankers, and corporate disclosure (supported by artificial intelligence analytics) can build a granular ‘outside-in’ view of fit, synergies, value, and competitive bidder landscape. This analysis alone may provide sufficient confidence to approach a seller with a compelling, credible offer à la Don Corleone.

If this ‘outside-in’ view is insufficient, the second window opens as the seller quietly begins preparing for an auction, within a year before its anticipated start. In my experience, many bidders tend to underestimate a seller’s willingness to share non-public information before a formal process. To start with, the sell-side has an interest in interacting with potential buyers to screen their interest. With a subtle, choreographed marketing process (supported by expert financial advice) and the threat of an auction, the seller may trigger a pre-emption under advantageous terms.

The final opportunity is to take over an auction process after launch. This can occur within days of submitting indicative bids. For the well-prepared buyer, the data room and management presentation serve not as discovery but as confirmation, enabling it to shortcut an auction.

Preemption is the product of strategic maturity, rigorous preparation, and disciplined execution – supported by experience, psychology, and tact as every situation carries its own dynamics.