There are multiple horror stories surrounding mergers and acquisitions. It’s a risky process that can result in huge losses. Just ask Google and Motorola, Microsoft and Nokia, eBay and Skype, among other failed mergers and acquisitions. Making sure you approach a merger and acquisition with excellent preparation will give you a much better chance to succeed.
The Different Types of Mergers and Acquisitions
Here are the common mergers and acquisitions types you may come across:
- Mergers: When the board of directors of two companies approves the combination of the entities.
- Acquisition: When an acquiring company obtains a majority stake in the acquired firm.
- Consolidations: When a new company is created by abandoning old structures and combining core businesses.
- Tender offers: When one company purchases the outstanding stock of another firm — but not at market price.
- Asset acquisition: When one company directly acquires another company’s assets.
- Management acquisition: When a company’s executives purchase a controlling stake in another company and take it private.
How to Prepare Your Business During a Mergers and Acquisitions Process
The following steps are a guideline of how you can prepare your business for a merger or acquisition:
- Ensure a non-disclosure agreement is signed early on during talks with the acquirer.
- Calculate the business’ worth. Determine the value before you agree to a sale, so this requires extensive research to determine whether you need funding or can afford it outright.
- Hire an investment banker to help in the process. They can deal with finding prospective buyers and act as intermediaries during negotiations.
- Hire experienced and knowledgeable business experts, such as a full-time mergers and acquisitions lawyer.
- Have the mergers and acquisitions committee — and not the CEOs — negotiate the terms.
- Next, provide a letter of intent. This should feature an exclusivity period and gives you time to lock up a deal.
- Prepare to engage in a smooth process internally by completing contracts, records, stock, and more. The buyer will need to do due diligence to ensure everything is updated and correct.
- Combat internal issues, such as planning for employee retention, dealing with stock, and whether you need to pay employees you won’t retain.
- Finalize your deal terms with a sales agreement. This document will highlight the purchase of assets and stock with an attorney on-hand to review its accuracy. Don’t leave anything out, as it can create issues once the merger or acquisition has been finalized.
- Don’t let distractions take your focus away. The relevant bodies involved must stay on the ball and not let the company deteriorate as it can jeopardize the merger or acquisition and change the situation drastically. The buyer will constantly monitor the performance during the due diligence review, so don’t risk anything.
- Finally, transfer business ownership. The agreement terms will dictate the steps required and what ownership will look like. Always have an attorney with you during this preparation step.
Mergers and acquisitions can be difficult to accomplish — and even more challenging to prepare for. For helpful advice and guidance, get in touch with our expert consultants at Satty, Levine & Ciacco, CPAs, P.C. today to prepare for your merger and acquisition.