A key hallmark of many of the most exceptional deals that the Locust Walk team have done involves having successfully developed the marketplace in advance of and leading up to a significant corporate milestone. As advisors, we are often able to more rapidly engage prospective partners/investors/acquirers because the opportunities we present are understood to have had a level of diligence and quality. However there are, nonetheless, a number of key learnings that we are able to share that can help any dealmaker in their process:
- Create an event horizon
The optimal process for a deal will focus on a major de-risking event, such as a clinical data milestone, a meeting with the FDA, or another technical event that will reasonably drive multiple parties to transact. This creates a ‘when’ and ‘where’ that will orient the marketplace around the opportunity and position partners to engage in a competitive process and maximize value.
- Build the marketplace
It’s often underappreciated how much time is needed to conduct outreach and position partners to transact. Some companies will be faster than others when it comes to engaging in diligence and submitting a term sheet, but the process needs to account for the median amount of time that established companies will require to engage. Most major companies follow some semblance of a standardized review, with regular evaluation meetings that gate resources for diligence, and transaction committees that may meet monthly to review an opportunity and approve the submission of a term sheet. A well designed process allows parties to work through their defined process and optimally engage. Many times a prospective partner will decline an opportunity if they do not feel they have adequate time to conduct diligence and ramp up their resources.
The calendar provides two general windows for transactions:
1) Beginning around JP Morgan and extending to June/July,
2) Starting after Labor Day and ending with the holidays in December.
Only deals which have significant momentum will get completed in the summer months or during the final two weeks of the year; It’s simply too challenging to get the necessary resources and stakeholders to execute during those period.
Generally, you should look to engage the marketplace at least two months in advance of the event horizon. This period will provide adequate time to conduct a robust outreach campaign, schedule initial calls/meetings to present the opportunity, and allow the partners to prepare their diligence in order to be positioned to transact following the event. The more meaningful the opportunity, the earlier you should engage the marketplace.
- Leverage milestones
There are ways that you can develop or heighten partner interest, either prior to the event horizon or following. These could include scientific publications or other press releases about corporate development that can be shared with interested parties in the form of an update. It could be market research, or updates on communications with regulatory agencies. Circulating these updates with parties during the process can heighten interest and engagement.
A well designed process, particularly those led by an advisor, can infinitely increase the probability of completing a successful transaction, creating the sense of a competitive process, and improving the economics of the deal. If you are interested to discuss how Locust Walk can help you with your partnering needs, please contact us at michael@locustwalk.com
Written by Michael McCully