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In addition to the bankruptcy context, the increasingly common use of auctions managed by investment banks or other financial advisors has affected early-stage due diligence activities. While sellers typically permit interested bidders to examine data room documents and submit follow-on questions, full-scale due diligence generally is not permitted until the seller has selected the winning bidder following a review of the prospective buyers' markups of a proposed acquisition agreement. Buyers frequently propose numerous additional revisions to the acquisition agreement based on their subsequent due diligence, but sellers often impose tight deadlines on the winning bidders and otherwise attempt to limit the due diligence-driven revisions to a bare minimum.

The typical strategic growth options are as follows: organic, inorganic, or by external means. Examples of organic growth are hiring additional salespeople, developing new products, and expanding geographically. The best example of inorganic growth is an acquisition of another firm, something that is often done to gain access to a new product line, customer segment, or geography. Finally, external revenue growth opportunities include franchising, licensing, joint ventures, strategic alliances, and the appointment of overseas distributors, which are available to growing companies as an alternative to mergers and acquisitions as a growth engine.

Some transactions are motivated by the need to transform a firm's corporate identity or even to be transformative for the buyer overall, where the target company may lead the buyer in a new direction or add significant new capability.

Every company says that it wants synergy when doing a deal, but few take the time to develop a transactional team, draw up a joint mission statement of the objectives of the deal, or solve post-closing operating or financial problems on a timely basis.

Classic mistakes include a lack of adequate planning, an overly aggressive timetable to closing, a failure to really look at possible post-closing integration problems, and, worst of all, projecting synergies to be achieved that turn out to be illusory.

For the buyer, the key motivators in an acquisition (which will be discussed in more detail in Chapter 3) usually include one or more of the following: Revenue enhancement Cost reduction Vertical and/or horizontal operational synergies or economies of scale Growth pressures from investors Underutilized resources A desire to reduce the number of competitors (increase market share and reduce price competition) A need to gain a foothold in a new geographic market (especially if the current market is saturated) A desire to diversify into new products and services

In many cases, mergers and acquisitions are being driven by a key trend within a given industry, such as: *Rapidly changing technology, which is driving many of the deals in high technology *Fierce competition, which is driving many of the deals in the telecommunications and banking industries *Changing consumer preferences, which is driving many of the deals in the food and beverage industry *The pressure to control costs, which is driving many of the deals in the health-care industry *A reduction in demand, such as the shrinking federal defense budget, which is driving the consolidation in the aerospace and defense contractor industries

Successful mergers and acquisitions are neither an art nor a science, but a process. In fact, regression analysis demonstrates that the number one determinant of deal multiples is the growth rate of the business. The higher the growth rate, the higher the multiple of cash flow that the business is worth.

Strong revenue growth 2.Significant market share or a strong niche position 3.A market with barriers to entry by competitors 4.A strong management team 5.Strong, stable cash flow 6.No significant concentration in customers, products, suppliers, or geographic markets 7.Low risk of technological obsolescence or product substitution