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Mergers & Acquisitions

M&A Due Diligence: Answers to Common Questions from Sellers

Are you exiting your business or considering a merger? Find answers to some common questions asked by sellers regarding merger and acquisition (M&A) due diligence.

1. Should I Sell My Company Through a M&A Adviser or Broker?

Hard work, focused attention, and expertise are required for a successful company sale. Owners who try to sell their businesses on their own or through a broker can make costly mistakes or become distracted by the sales process and end up neglecting the day-to-day operations of their businesses. As a result, performance suffers, causing concern for purchasers and lenders. Additionally, if there are not several bidders at the negotiation table, proprietors who sell on their own frequently sell for less.

Merger and acquisition due diligence advisors, on the other hand, focus on the sales and vetting process for you and can source financially qualified and strategic buyers interested in acquiring a business. Protect your interests by delegating the selling process to an experienced adviser while you concentrate on running your business.

2. What is the Right Time to Inform Employees of the Merger or Acquisition?

Your M&A advisor can help you figure out the best time and method to inform employees and other stakeholders. It is usually best to tell them right before the deal closes. However, if the buyer requires the services of key workers, they may need to be included early in the process.

3. What is the Best Exit Plan for a Business?

The best exit strategies depend on the individual goals and conditions of the seller. Transferring to family, management, or an industry consolidator may be your best option. Alternatively, you might sell to a high-net-worth individual or a private equity firm that is not in your sector.

4. When Should I Make an Exit Strategy?

The earlier you establish an exit strategy, the more alternatives you will have and the higher your chances of success. A rule of thumb is to start three or more years in advance, whether your succession plan comprises an internal transfer or a third-party sale.

5. When is the Best Time for Business Valuation?

When it comes to business valuation, the optimal time is when the company is profitable and growing, and further growth is predicted. This gives you the upper hand in negotiations and maximizes business value. If your sector is consolidating, it is typically a good idea to sell sooner rather than later. When you sell at a period of low debt and easy credit, purchasers are more likely to borrow and pay more.

6. How Do I Know When to Sell My Business?

When it comes to selling your business, you must emotionally and mentally prepare yourself for the significant changes that lie ahead. Are you going to continue working or will you be retiring? Personal finances and lifestyle are generally the determining factors. Assess your overall net worth, asset portfolio, and yearly expenditure demands with the help of your wealth adviser. Have an M&A due diligence expert evaluate your company’s market worth and condition of affairs from the perspective of an outside investor. Recognize the advantages of departure preparation or exit planning and how to accelerate the value of your business for eventual sale.

7. When is the Best Time to Start the Selling Process?

It is advisable to begin two to three years before the desired completion date. Preparing a company for sale might take anywhere from a month to a year or more. On average, it takes about seven to nine months to complete the sale process and consummate a deal after coming to market.

8. Should I Contemplate a Payment Plan?

When it comes to seller financing and other types of post-sale compensation, there is always the possibility of not getting paid. Offers with some form of payment plan have higher costs on average than all-cash deals. Offering an installment sale may attract more buyers. It also demonstrates your belief in the business’s ability to perform under new ownership.

Profit from interest on the money you borrowed and spread the cost of the consideration over several tax years to reduce your tax obligation. However, there may be risks involved with seller financing, which can be reduced with good due diligence and transaction structuring.

9. How Long Should I Anticipate Staying on Board After the Sale?

Seller involvement with the new owner might last anywhere from a few weeks to several years. The nature of the firm, management depth, the buyer’s demands, and other factors can help determine the exact time. It is best to consult with your exit strategy expert about what to expect in your specific situation.

10. What is the Significance of Confidentiality?

Confidentiality works in your best interest and protects the business on several fronts. For example, employees who discover that their employer is for sale may look for other work to supplement their income. Customers may start preferring alternative vendors for your goods or services. Alternative channel partners may be sought by key suppliers. These occurrences have the potential to degrade financial performance and destabilize your organization, resulting in higher risk and lower value. At a time when your company must appear its best, your constituents must stay devoted.

11. How Do Exit Strategies Keep Client Information Private?

Exit strategies help maintain confidentiality by employing a mix of best practices. All buyer inquiries about sensitive corporate information must be routed through a professional M&A advisor or exit strategy experts. Executive summaries sent to buyer prospects, as well as any blind advertisements, must be meticulously created and approved by the seller. Prospective buyers must sign non-disclosure agreements and answer a series of qualifying questions.

Confidential information is only given to buyers who have passed a background check. The timing and format of ultra-sensitive information releases, such as identification of customers, must be carefully decided and controlled. Finally, the buyer must release contingencies or make a deposit before getting access to important stakeholders or ultra-sensitive information.

12. How Can I Assist in The Sale of My Company?

Buyers like companies that are well-run and reliable. The most important thing you can do is keep focused on operating the business while the M&A due diligence experts handle the sale. Retain regular hours, develop a backlog of orders, maintain important connections, and achieve or exceed your financial predictions.

Secondly, always be honest with the buyers to build trust. Represent your firm with zeal, but do not exaggerate the truth. If the firm has flaws, make them public as soon as possible, with fixes in hand. Resolve any problems that were discovered throughout the evaluation process. Buyers want accurate, up-to-date financial accounts and information. So, involve your CPA before and during the selling process, and promptly reply to information demands.

13. What is the Difference Between a Stock Sale and an Asset Sale?

In an asset sale, the seller transfers the company’s assets to the buyer. Inventory, equipment, real estate, goodwill, copyrights, patents, leases, and customer lists are examples of such assets. In a stock transaction, the buyer receives shares of the company’s stock. Generally, asset sales are more common. Although, in some situations, a stock sale may be more advantageous for tax or other reasons and that’s important to discuss best options with tax planning M&A advisory strategists.

14. What is Required to Appraise a Business Before it is Sold?

Many variables influence the value and saleability of a business, such as:

  • Financial statements and tax returns for the past five years
  • Financial statements for the current year, with AR and AP aging
  • Business plans and predictions
  • List of intangible assets and any liabilities excluded from the balance sheet
  • Depreciation schedule or fixed asset register
  • Information on the company’s services and products, clients, suppliers, management, and strategy
  • Copies of essential operational agreements and leases
  • Debt repayment plan
  • Dashboards and reporting for management

15. What Is Buyer Due Diligence?

Due diligence is performed following the execution of a letter of intent by both parties to ensure that the seller is dealing with a competent party. The buyer might use a due diligence contingency and checklist to verify facts and assumptions. If the buyer is happy with the due diligence information, they can proceed with the acquisition. Otherwise, the agreement may be renegotiated or canceled.

Companies are frequently sold with less than 100% cash at closing. As a result, due diligence on the buyer by the seller is crucial. The due diligence period is also usually the time to secure third-party financing and approvals and formulate strategies to transfer operations.

Windes: Delivering the Best M&A Due Diligence Services

M&A due diligence is a complicated and time-consuming process with no room for error. Windes can help you achieve effective and trustworthy outcomes. Our specialists have the expertise and experience necessary to create and execute successful exit plans.

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