1. Put together a preliminary confidentiality agreement
Most companies are reluctant to share their financial information with competitors, but that’s exactly the kind of information SP Plus needs to conduct its due diligence. As a result, the legal department is involved early in the acquisition process to structure an appropriate, deal-specific confidentiality agreement.
2. Determine if the acquisition makes sense on a macro level
With a confidentiality agreement in place, the acquisition target is asked to provide basic, nonpublic financial and business information. “We don’t need what we call site-specific or location-specific information,” says Sacks. “But we need to assess up front the basic value of a target company. To make an initial assessment, we need to know how many parking locations the company has, gross revenue, gross profit, and expenses. Such basic macro financial information will tell us if it makes sense for us to pursue the acquisition or to enter a specific market.”
3. Determine the structure of the acquisition
When APCOA acquired Standard Parking in 1998 to form the predecessor of SP Plus, the deal was structured as a stock purchase. When SP Plus acquired Central Parking in 2012, it was structured as a merger. The value of the deal must justify the increased risk and the required due diligence that comes with [each of] these deal structures. As a result, most acquisitions are structured as asset purchases; meaning SP Plus buys the name, contracts, and certain assets, while specifically negotiating what liability exposure it will accept.
4. Proceed with detailed due diligence
If the preliminary numbers validate an acceptable valuation, and the owner’s desired purchase price aligns with what SP Plus wants to pay, the acquisition proceeds to the next step, which is a much more detailed due-diligence process. “At this point, we want site-specific information,” says Sacks, who works closely with the SP Plus finance group, auditors, and outside attorneys. “Once we get into the weeds, there’s a real emphasis on financial due diligence—in our business, the potential exposures and liabilities are high.”
5. Draft a nonbinding letter of intent
As SP Plus is doing its due diligence, it’s simultaneously drafting a nonbinding letter of intent, which is a heavily negotiated document that typically contains specific noncompete agreements and a standstill agreement. At this point, SP Plus asks if it really wants to invest the time commitment and expense of an acquisition, and the seller should be asking if it really wants to sell. The interesting thing about the nonbinding letter of intent, says Sacks, is that even though it’s nonbinding, the businesspeople involved don’t see it that way even though the attorneys assure them that it is. “But it’s a big deal for the businesspeople in the psychological process of the deal,” says Sacks. “It’s been rare for me to lose a deal after I have a nonbinding letter of intent.”
6. Draft the closing documentation
How long it takes to close a deal, at this point, depends on numerous factors, and it’s often counterintuitive. One might think more consultants would speed the process along. In reality, says Sacks, they often just needlessly complicate the deal. While forty-five to sixty days is a good estimate of how long it should take to complete all documentation, it’s not unusual for it to take three or four months.
Sacks’ advice: Don’t rely on e-mail, as it’s often a detriment to closing deals. “People lose sight of the forest for the trees,” he says, noting that more can be accomplished by having a face-to-face sit down at the right time. “Many times during the life of a deal I demand that the e-mails stop and schedule a meeting to get the parties into a room,” he says. “In that room, in a day, no matter how diverse the positions are, you can accomplish more than you can in two weeks of e-mails.”