Having represented privately held companies, engaged in industries ranging from food to logistics to technology, for over 30 years, I have been fortunate to have gained valuable insights into what optimizes their Merger & Acquisition (“M&A”) exits. I have distilled those insights into my Top Ten M&A list of guidelines for privately held companies:
- Assemble the Right Team – Assembling the right team of advisors before a deal is imminent is critical to the successful M&A exit for privately held businesses. Getting upfront advice from accountants, lawyers, investment bankers, commercial bankers, and wealth advisors can optimize your outcome. While all of these advisors may not play a role in your M&A deal, assessing whether you need their advice before the process commences may well make a difference between a successful and unsuccessful transaction.
- Prepare – Do the Upfront Work – Selling a company puts the company’s business and legal affairs under a microscope. It is important to make sure that all essential legal and financial matters are put in order. Those range from stock recordss to contracts that protect the company’s Intellectual Property (“IP”).
- Run the Numbers – Although one cannot anticipate the final outcome of purchase price negotiations, sellers should run various purchase price “pro formas” based on multiple scenarios. Those scenarios should take all taxes into account and include variables for the structure of the transaction and the shareholders’ personal tax characteristics.
- Avoid Surprises – And be Ready for Them – The work of the lawyers in an M&A transaction is not only to help structure and document the deal, but also to manage the process to avoid surprises to the participants. One of the keys to successfully concluding a transaction is to maximize your confidence that you know what a buyer will find during due diligence. However, it is also important to know how to deal with surprises when they occur.
- Speak With One Voice – Sellers should always be aware that negotiations start with the first contact with a potential buyer. Multiple negotiators may send mixed messages to a buyer. Those may not present the company in the best light. Accordingly, designate one representative to speak for the company and negotiate with the buyer so that inconsistencies and ambiguities can be avoided during the sale process.
- Let the Process Work – When the seller has the benefit of multiple potential buyers expressing interest in the company, be sure to let the process of negotiating work. Particularly when an investment banker is involved, sellers must permit the banker to do the work to get the best price and terms from the most interested buyer.
- Pay Attention to the Detail – Some business owners feel that a deal is done when a handshake is made or a letter of intent is signed. While those are important moments in assuring that a transaction is real, there are many material issues contained in a variety of legal documents that will impact the seller’s successful consummation of the transaction and assure that post deal objectives are met. Accordingly, it is important that the parties pay close attention to those details, including reading and understanding all of the contractual documents.
- Be Realistic and Understand Your Limits – When starting the sale process, sellers need to understand the realistic price range for the business being sold and their limitations in carrying out the process. Being realistic, not only with respect to your business but the marketplace in general, while understanding your own limitations, will assist you to be objective and make better decisions in the context of the transaction.
- Document It – Key understandings are often made during meetings or calls between principals of the buyer and seller. Make sure that all of the material elements of the transaction are well documented so that ambiguities and potential conflicts can be avoided.
- Don’t Think Things Won’t Change Afterwards – Sellers of a business often continue to work in the business after it is sold. They should expect that despite titles and duties, their role in the business will materially change under new ownership. They need to understand that things won’t be the same.
If one adopts these guidelines the probability for the successful consummation of an M&A exit will be improved.