An indicative corporate finance process outlines the typical steps taken during a financial advisory engagement.
Step 1: Initial Engagement and Meeting
- The client formally engages the corporate finance advisor by signing an engagement letter, which outlines the scope of services, responsibilities, and fee structure (typically a retainer and/or success-based contingent fee).
- The client details what exactly they want, and what they expect from the advisor.
Step 2: Preparation
- The advisor conducts indicative valuation work to assess the business’ potential value.
- The advisor develops the business’ equity or investment story to present to potential counterparties.
- The advisor prepares materials such as the information memorandum (IM).
- The advisor curates a buyer/investor target list, e.g., trade buyers and private equity firms.
- A virtual data room (VDR) is often set up to facilitate early-stage due diligence and manage information flow.
Step 3: Buyer/Investor Outreach
- The advisor makes contact with potential buyers/investors, providing a high-level summary of the opportunity, typically on a no-names basis, to ascertain potential interest.
- Once interest is confirmed, the interested parties are asked to sign a non-disclosure agreement to access confidential materials.
- Preliminary information is shared on the opportunity, typically consisting of an information memorandum.
- Ongoing Q&A and discussion is facilitated by the advisor to help the potential buyer/investor form a view on the opportunity and their potential approach to valuation.
Step 4: Indicative Offers and Negotiation
- An indicative offer, also known as a letter of intent (LOI) or a non-binding offer, is the first offer a buyer will put down.
- The advisor and client review the offers and typically select a preferred purchaser. If required, a second round can be utilised to capitalise on competitive tension and enhance offers.
Step 5: Due Diligence
- A preferred purchaser is selected and typically granted a period of exclusivity in which they can perform their due diligence process.
- Access to the data room is granted, containing a wealth of financial, legal, and operational information.
- The buyer conducts their due diligence process.
- Meetings with management and ongoing Q&A are facilitated.
Step 6: Legal Documentation and Completion
- Legal advisors will draft and negotiate binding documents such as a share purchase agreement (SPA) and the warranties and indemnities (W&I).
- Legal documents are signed, and once all conditions of the deal are satisfied, the consideration is paid, marking the formal conclusion of the transaction.
