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Mergers & Acquisitions

Keys to a Successful Mergers and Acquisitions Strategy

Are you struggling to create a successful mergers and acquisitions strategy? This article discusses factors to consider for a successful M&A venture.

Successful mergers and acquisitions between private businesses typically entail various critical business, legal, human resources, financial, and intellectual property challenges. If you wish to successfully navigate the sale of your business, you will need to understand the issues and dynamics involved in M&A.

The following are key considerations to help you build a successful mergers and Acquisition strategy:

M&A Evaluations Are Negotiable

You must remember that offer price and M&A assessments are always negotiable. These negotiations depend on multiple factors, including comparative market analysis, the position of the buyer, your financial and 409A valuation, your historical financial performance trends, and projected company growth. A buyer will also investigate items such as your proprietary technologies, the industry, the risks your company faces, the experience of your key employees, and other determining factors before negotiating a price.

All successful merger and acquisition negotiations require some compromises on both ends. To maintain a strong footing, you must evaluate the negotiating environment. Ask yourself the following questions:

  • Which party has the upper hand?
  • Who needs the deal more?
  • Are there multiple bidders in the mix?
  • Can non-financial terms be negotiated for a better price?
  • Is the deal price fair/attractive enough to convince you to face post-closing indemnity challenges?
  • Do you have the right help, and are you fighting for the right deal?

If you cannot agree on an acquisition price, put forth an “earnout” agreement, which will enable you to receive further consideration if the business achieves specific financial metrics. While an earnout certainly poses many risks for a seller, it can help you achieve the return you seek.

Employing skillful negotiation strategies at this stage of the process is critical. Having experienced advisors on your side to help make reasonable counteroffers is essential for a successful outcome, especially if the other party has hired advisors. The aim is to establish rapport with the lead negotiator on the other end so that both sides come away from the deal satisfied.

M&A can be Time-Consuming and Exhaustive

Most successful mergers and acquisitions deals take a long time; typically, it can take four to six months to finalize a deal. The timeframe of your M&A deal will depend on the buyer, their due diligence, urgency, and the strength of your M&A strategy.

The length of time a deal takes will be shortened with the assistance of a financial advisor and a lead negotiator, who will make all corporate and financial data available in a secure online portal and maintain a draft disclosure schedule. An advisor will also ensure that management presentations are prepared in advance, targeting key points that favorably present your company and advise you on strategically answering financial and operational questions.

Anticipate the Due Diligence Investigation

Successful mergers and acquisitions transactions involve the buyer performing due diligence before committing to the transaction. Be prepared for whatever questions the buyer might have. For instance, they will ask you about the nature and extent of your contingent liabilities, your obligations, litigation risks, intellectual property challenges, problematic contracts, and financial standing, among other things.

A secure online portal for access to this information will ensure the due diligence process is smooth. This portal should contain all the key information a buyer should know about your business, including:

  • Corporate documents
  • Employee contracts and information
  • Financial statements
  • Customer contracts, turnover, and concentrations
  • Intellectual property information

The portal helps guarantee confidentiality, speeds up the M&A process, and gives you insights into interested buyers. However, populating an online portal and managing it will take time and resources. This is where experienced M&A advisors can help – ensuring your documents stand up to potential buyers’ comprehensive due diligence and investigation.

Negotiate with Multiple Bidders

When selling your company, it is advisable to negotiate with multiple bidders. The competitive environment will help you obtain a higher selling price and better deal terms. You will be at a disadvantage if you negotiate with one bidder only. This is especially true if you agree to an exclusivity agreement, limiting your ability to speak with other potential buyers.

Hire an Experienced M&A Team

M&A negotiations involve multifaceted deal structures and legal challenges that can be contentious. Hiring an experienced M&A team will help you reap distinctive M&A benefits. Experienced outside advisors that specialize in M&A, who are experts in specialty areas, such as intellectual property, tax, and employee matters, will help you navigate the M&A landscape so you can spend time on your business, not on the process.

An experienced advisor will assist you in designing and executing the selling process with potential buyers – identifying, contacting, and arranging meetings with prospective buyers. They will assist in responding to the due diligence requests of potential buyers, the negotiation process, and provide critical advice on comparable market valuations, helping you make the right decision.

Windes knows the financial realities and tax implications of M&A deals and their inner workings. Our financial due diligence and tax services involve providing a complete understanding of a target’s financial statements, projections, capital expenditures, inventory, debtors and creditors, major customers, cost and margin analysis, and a thorough review of tax reporting and risks of additional under-reported tax.

Quality of Earnings reports is often used in financial due diligence, both on the buy- and sell-side of an M&A transaction. Windes will collaborate with the target’s key management and its due diligence team to identify favorable adjustments to EBITDA. Whether you are buying or selling a business, Windes can help prepare your team to ensure your accounting records are complete and accurate. We can also work together with you to evaluate investment and financing opportunities utilizing cash flow and financial models. As experienced specialists, our team will help you save money in the long run by identifying risk factors in your transaction. Post-close, our tax team can assist with earnout calculations and tax filings, deadlines, and payments. We will work with the buyers and sellers throughout the due diligence process to avoid any conflicts and can assist with post-close disputes that may arise.

Discuss Relevant Employee and Benefits Issues

M&A transactions involve multiple essential employee and benefits issues that need to be addressed, such as the restricted equity and outstanding stock options issued by the seller. Discussions need to be had with the buyer to determine if your employees will need to “re-vest” their vested options or invest part of their equity into the company. Ensure that certain employees sign confidentially and invention agreements, as applicable.

The equity grant agreement should be carefully reviewed. Does the buyer plan to establish a “carve-out plan” or offer retention agreements to key employees? Windes can assist in negotiating the new employment agreement terms and discuss the termination of employees and the related severance costs. Moreover, if the accelerated payouts to key employees trigger the excise tax provisions of the golden parachute tax, a special 75% stockholder vote is needed to prevent this tax liability.

More Considerations

The following are other considerations to remember in formulating your M&A strategy:

  • The buyer will thoroughly vet your financial statements and projections, which is the most important aspect of the acquisition process.
  • Prepare your intellectual property list and related documents to help the buyer place the right value on your company.
  • Negotiate key aspects of the letter of intent to ensure that you do not lose your bargaining power from the get-go.
  • Prepare a well-drafted acquisition agreement that protects you from financial, legal, and other liabilities.

Successful mergers and acquisitions transactions can be a long, winding process that needs to be handled carefully and strategically. Windes can help you secure a mutually beneficial M&A deal with your buyer. Our specialists have the expertise and experience necessary to work collaboratively with other advisors, such as investment bankers and M&A attorneys, to create and execute a successful M&A strategy. We tailor our due diligence services based on your specific situation. We are able to provide the accounting, assurance, advisory, and tax services you need to negotiate, structure, and complete the transaction with the most positive outcome. We are here for you every step of the way – from preparing your business for sale to post-close.

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