Mergers and acquisitions seem more the norm today than the exception, especially in the private sector.
Successfully completing a merger or acquisition transaction is not merely a matter of signing on the dotted line. Rather, it requires meticulous planning and cautious execution. Any business owner deliberating a sale or capital investment should first thoroughly assess eight key factors that could potentially make or break the deal.
* Knowledge is power. If you are considering venturing into a merger, acquisition or any large financial transaction, it is important that you fully understand the dynamics of the capital markets and the valuation and structural complexities they may bring.
Embark on a thorough review of your organization’s competitive strengths and plans for growth to help you place your organization in a better position to maximize value. In addition, pinpoint the source of major, one-time expenses, accounting issues or economic conditions that may be skewing overall results.
Appraise all of the structuring options — e.g., stock versus asset purchase — along with their benefits and drawbacks. In an M&A transaction, all actions have tax implications, financial ramifications and legal consequences, and many times, a shrewd negotiator can take advantage of what you do not know or understand. Come to the table prepared.
* Now or later. Timing is everything. Before jumping into a transaction, you need to identify your personal objectives and valuation expectations. Assess the current conditions of the capital markets and the state of the economy, and determine how these external factors may impact the value of your business.
This inner debate may reveal inconsistencies. Whatever this assessment reports, you will be armed with the vital details you need to effectively prepare for and execute the best strategy for success.
* Your exit strategy. Who will be the boss after you leave? This is an important question to answer with confidence. In any M&A transaction, maximizing an organization’s enterprise value is usually the objective, and a viable succession plan is a key means to preserving this value.
A business owner should plan three to five years in advance. Your replacement team will need time for an education so business performance can be sustained after you leave. A well-built management team is a precious asset in any M&A transaction.
* Balance your books. A meticulous, dependable audit is a crucial part of any successful investment, and some investors will not even look twice without it. So audit your financial statements before you begin a deal.
* Keep it simple. Reasonably, the harder something is, the less likely you are to do it. Emphasize the positive and communicate your business’s value with clarity, logic and authenticity — make it easy to understand and believe.
* Due diligence. A wise buyer requires the necessary information, good and bad, to make an informed decision. Be prepared to answer tough questions.
Consider possible risks and think of what you would ask if you were the buyer. Outline your plans for growth, and illustrate your viability and strengths. More important, be ready to discuss your weaknesses and your plans to conquer them.
* Don’t forget your day job. Never neglect the main task of running your business. While the M&A process is consuming, it will only reap reward if your business continues to flourish. Your primary objective should still center on optimal business performance.
* Consult with an expert. Financial, tax and legal issues may surface. Your side will need razor-sharp, diverse expertise to guarantee the deal lends to your advantage. Designate a competent team of loyal advisers who can assist you when these issues arise. This will help increase the probability of a triumphant M&A experience.
Reach Mike McCoy at (312) 899-7302 or [email protected]. Reach Matt Anderson at (312) 899-7309 or [email protected].
