Hello from Spain! I wanted to write two posts before Christmas, and today I finally decided to talk about a methodology that I used when I was a Software Engineer and I think it could be quite useful in M&A.
Not all areas in Finance works in the same way. Fortunately, in M&A we used to work in projects (A.K.A. transactions / deals) and it reminds me the methodology I worked with in the past, SCRUM!
First of all, what is SCRUM? I think the next picture will help a lot:
To make it simple, let’s imagine that we want to work from the selection of a Target Company to our thesis presentations in front of the Board of Directors (we would work in the same way in the next steps, the LOI, managing the DD, etc.)
As a Product Backlog we would have the key points of the whole M&A Deal Flow of the project. In this case, we would have as a Sprint Backlog our Company Valuation. The process of doing a Company Valuation has “Sprints”, stuff that you have to do in order to complete the whole Valuation. We could split our Sprint Backlog in the following Sprints:
1. Understanding the Business
2. Gathering Data from the Sector, the Target Company, the Products and how they are sold, and the Target Company customers.
3. Building an Excel Model with the Historical Data and the projections of the P&L, the Balance Sheet and Cash Flows (We want to know the profitability in the future!). Furthermore, we would have to consider different scenarios and sensitivity analysis.
4. Having a meeting with your manager and your workmates in order to see different points of view.
Now, we could think, well, we would have to do a presentation and we will present it to the Board of Directors, but… I would like to suggest the following:
5. Once we have a good and strong Excel Model I would write a case. Yes, just like Jeff Bezos meetings!! No Power Point yet! In this step, we will discuss the key points with managers from different Business Units in order to get a final decision.
6. Once we have the final Excel Model, we would do the Power Point to do the presentation of our investment thesis in front of the Board of Directors.
In this example I have talked about 6 Sprints before getting the final product, but we may consider the deadline for each Sprint (in the picture is considered 15 days), it’s up to you!
Another important point here is that meeting every 24 hours. No worries, that meeting means a coffee break where you catch up with your manager to follow up the project.
Well Simón… this methodology seems so cool and blablabla.. but how could we implement it? And the answer is in the following gif from Silicon Valley TV Show (you should watch it!):
The first column would be our Product Backlog , and every Sprint is a paper color (the same color for the Sprints of «Company Valuation» Sprint Backlog) As we can see, all Sprints start in the ICE BOX column (A.K.A. Backlog Sprint) and once we have started a Sprint we put the paper in one column or another depending on the Sprint status.
Definitely, I think Scrum was made for M&A
Hope you enjoy it!
See you soon!