Sell-Side Best Practices and

Considerations for Private Equity

Buyers
December 2020
Sell-Side Best Practices and Key Considerations for PE Buyers (1 of 3)

High Level Deal Negotiations /

Due Diligence Sign-to-Close Post-Close
Timeline Deal Execution

PE Buyer Traits Prepared Seller Actions

PE are serial buyers and join a process ready to push the gas pedal.
They expect robust analyses and bombard with data requests (in
1.
absence of which, will perform their own analysis which could impact
purchase price)
 Develop a robust strategy to manage extensive data requests
 Align internally on what level of detail will be addressed to find the
right balance between entertaining all questions vs. only providing
must-haves (assessment based on materiality)

PE Buyers rely on consultants for buy-side diligence and usually go deep  Preempt key data requests and prepare comprehensive analyses to
2. into detail. PE’s have less tolerance for unprepared sellers and assume drive value e.g., financial projections, net working capital, standalone
worst-case scenarios in the absence of granular data cost assessments, complete employee census among others

Value creation is critical for PE Buyers. Expect questions around growth  Craft and align on a perspective of potential savings and
3. opportunities, target competitive performance, rationale for sale and transformational ideas in order to position the target business for
potential investments needed growth

 Prepare for leadership interactions and ensure that information flow

PE Buyers look for unrestricted access to leadership in order to is clear
4. challenge / pressure-test the growth story and value proposition of the
business  Look out for behavior that tries to circumvent the approved
communications process

Copyright © 2020 Deloitte Development LLC. All rights reserved. 2

Sell-Side Best Practices and Key Considerations for PE Buyers (2 of 3)

High Level Deal Negotiations /

Timeline Due Diligence Deal Execution Sign-to-Close Post-Close

PE Buyer Traits Prepared Seller Actions

PE Buyers have strong cost efficiency targets and make a push for  Understand operational intricacies, and have supplier contracts
5.
negotiations with suppliers as much as possible readily available and understand where value opportunities lie

 Establish a clear position internally on any services that are out of

PE Buyers may potentially lack infrastructure and require increased scope before engaging the buyer
6. scope for TSA support. They are open to accept all possible TSAs and
are looking for a long timelines.  Look for outsourcing opportunities / creative solutions to provide
some services requested

PE Buyers usually require a final TSA schedule with costing as a pre-  Evaluate pre-signing team carefully and bring the right SMEs under
7. signing requirement with conditions that costing may be allowed to the tent to be able to complete key TSA requests
move only by a certain margin (See subsequent slide for detailed TSA implications for PE Buyers)

PE advisors are often working point-to-point; don’t assume that all  Clearly align on workstream owners from the Buyer and Seller side
8.
advisors are talking to each other during the negotiation period and make sure to bring advisors along the journey

Copyright © 2020 Deloitte Development LLC. All rights reserved. 3

Sell-Side Best Practices and Key Considerations for PE Buyers (3 of 3)

High Level Deal Negotiations /

Timeline Due Diligence Deal Execution Sign-to-Close Post-Close

PE Buyer Traits Prepared Seller Actions

 Create a robust governance process that outlines Buyer’s access to

PE Buyers require alignment on how the two organizations will sell-side colleagues
9. collaborate on separation execution as they will especially look for
support from the Seller to help them exit TSAs  Have a knowledge transfer TSA to delimit time and FTEs that Buyer
can have access to

 Set guardrails on Day 1 conditions to limit changes in workflows,

PE Buyers tend to apply their own levels of authority and change approvals or enhancements
10. decisions, approval cycles or processes while taking control of spending
e.g., PE Ops might be inserted as part of approval processes  Include restrictions and penalties for increasing volume / extending
TSAs and negotiate appropriately

PE Buyers often tend to look for opportunities to push additional

11. responsibilities and obligations to the Seller during the Post-Close  Clearly define a list of Buyer’s responsibilities upfront to hold them
accountable and ensure clear alignment on roles and responsibilities
period

Copyright © 2020 Deloitte Development LLC. All rights reserved. 4

Additional TSA Considerations for PE Buyers

Sale to Private Equity Sale to Strategic Buyer Spin-off / IPO

 Buyer will be responsible for stand-up and will  Buyers will often be driven by synergies and  Spin-Co will rely on the Parent for stand-up
Relationship with negotiate TSA aggressively their integration strategy
Counterparty  High degree of confidence due to aligned
 Diverging interests  Competitive or diverging interests interests and history as combined company

 Focus will be on developing robust TSA Exit
Plans to ensure Buyer quickly stands up
TSA Focus Areas capabilities due to heavy reliance on TSAs
 Rigorous operational and legal documentation
will be needed
 Focus will be on managing performance and
short timeframe
 Rigorous operational and legal documentation
will be needed
 Focus will be on “Spirit” of agreement captured
 Regulatory limitations may apply on types of
TSAs
 Planning to the practical level

High Varies Low

TSA Volume PE buyers will not have integration capability Based on buyer’s capabilities and pace at which Driven by tax-free spin requirements and
thereby requiring stand-up they can integrate sufficient separation lead time pre-Day 1

Medium to Long Medium Short to Medium

TSA Duration*
(~12 to >24 months) (~12 to 18 months) (~ 6 to 18 months)

* Duration may vary based on buyer’s capabilities and level and complexity of entanglements

Copyright © 2020 Deloitte Development LLC. All rights reserved. 5

Key Findings from Deloitte’s 2020 Global Divestiture Survey
The below results are based on a survey of professionals (C-suite members / Corp-Dev VPs) from 100 global
organizations (mid-cap to large-cap) across industries who were recently involved in divestitures or activities as sellers to
PE Buyers
What do you see as the biggest challenges in working with PE buyers?

Additional diligence requirements

are more granular/time consuming 67%
and distraction from running the business
Develop realistic standalone model
(run rate and onetime costs) 46%
Increased time to support
lender due diligence requirements 43%
Create standalone
operating model 33%
Working with PE on
potential exit planning 17%

Have increased PE diligence requirements had an impact on transaction?

Not applicable 28%

Yes - please specify : 16%

Extensive and lengthy diligence process 6%

Increased effort and longer negotiations 6%

More data calls 6%

Use of expert reports (QoE etc.) 6%

Others 6%
Copyright © 2020 Deloitte Development LLC. All rights reserved. 6
Appendix

Copyright © 2020 Deloitte Development LLC. All rights reserved. 7

Deloitte’s 2020 Global Divestiture Survey

This report is based on a survey of professionals from 100 global organizations who were recently involved in divestitures or activities as sellers. Deloitte
engaged a third party to perform the survey on our behalf. The survey was conducted from January through the end of February 2020, as the COVID-19
pandemic started to be seen. Then, to gain additional insights and perspective, we interviewed Deloitte leaders who are helping organizations shape their
M&A strategies in response to the pandemic.

Of the total survey respondents, 59 percent are C-suite members, and The survey captured global organizations with headquarters in the Americas
the remainder are at least vice presidents that led or were a part of (54 percent), Europe and Middle East (31 percent), and Asia-Pacific (15
their organizations’ corporate development teams. Two-thirds of percent).
surveyed companies have more than $1 billion in yearly revenue, and North America Europe
18 percent have more than $5 billion. The organizations surveyed
53% 24%
represent a cross-section of sectors.

Technology, Media & Telecommunications

Life Sciences & Health Care 4%
16% Consumer & Retail
33%

20%
Finacial Services

27%
Energy, Resources & Industrials 1% 7% 15%

South America Middle East Asia-Pacific

Copyright © 2020 Deloitte Development LLC. All rights reserved. 8