The process of preparing for a successful merger is neither easy nor is it often tailored to the best interests of the seller. To help business owners looking to sell their company understand the process behind mergers and acquisitions (M&A) more, our team at HJR Global has come together to provide you with our most vital tips for navigating the murky waters of an M&A transaction.
The Selling Company Should Prepare An NDA
If your company is selling, make sure you ask an acquirer to sign an adequate non-disclosure agreement (NDA) before you make any moves. This is especially important if your company is in financial trouble. You don’t want your potential acquirer leaking anything about the merger details that could negatively affect the equity of your business before you sell it, and an NDA is the best way to prevent those types of scenarios. Also, attempt to get an employee non-solicitation clause included in the NDA to protect your clients post-merger.
Hire Investment Bankers And Lawyers To Assist In The Process
If you’re looking into selling your company, putting down some money for a smart investment banker will almost always be a good call. A good investment banker can:
- Tell you who they believe would be interested in your company based on that buyer’s previous acquisitions and business values.
- Help you negotiate with buyers. Most initial merger or selling agreements are heavily biased in favor of the buyer, and a good investment banker can help you figure out what a fair price for your company would be, and can help you negotiate the buyer toward that goal.
- Help you verify your records. Not only can an investment banker help you make sure that your buyer’s business information is on the up and up, but they can also help you verify your records and assist you in checking things like client references.
- Advise you about market comparables. You never know when a buyer might become interested in a company like yours, and your investment banker can help you routinely check and make sure that you’re not passing up a golden opportunity.
Additionally, make sure you hire a lawyer. Find a firm that specializes in M&A (mergers and acquisitions) counsel, and have them help you traverse the merger process. If you hire both a good lawyer and an experienced investment banker, you drastically reduce your chances of selling too low, or to the wrong people.
The Buyer Should Offer A Letter of Intent
Whoever is buying your company should provide you with a letter of intent. As with most aspects of the M&A process, letters of intent are usually heavily biased in the buyer’s favor. However, if you can get a letter of intent that details escrow, representations, warranties, prices, indemnification provisions, et cetera, and one that has a short exclusivity period (the period in which you aren’t allowed to negotiate with other buyers), then chances are your buyer is on the level. Look for those key signs when selling, and you’ll help secure yourself from bad deals.
The Selling Company Should Make Sure That Its Business Is Ready For The Transition
Preparing a company for a merger is never easy, but there are some things you’ll want to do before the M&A process truly begins.
- First, make sure all of your files, contracts, and any other sort of documentation you have is completely up to date.
- Secondly, make sure you set up an online data center to house that information in.
- Next, make sure that your disclosure schedule, in which you’ll disclose contracts, equity holders and options, intellectual property, representations and warranties details, litigations minutia and more, is finalized and ready to go. This will take a significant amount of time, so budget your schedule accordingly.
- If your company will need any leases or contracts changed to reflect the acquisition of your company by your buyer, plan ahead so that process will be as easy as possible.
- Your buyer will be monitoring your company’s financial performance and comparing it with the projections you’ve given them for the entire M&A process. Nobody wants to pour millions of dollars down the drain for a dud. Make sure that even though you’ll be devoting significant amounts of time to the M&A process, you’re still keeping your company operating (and perhaps even growing) as effectively as possible.
- Deal with your employees in a sympathetic and authentic manner. You don’t want to be the CEO who told all of his employees they were laid off the day before the merger was finalized with a pink slip in their last paycheck. Tell employees ahead of time so they can research the buyer, and subsequently get their resumes together if need be. Consider only cutting employees who you know for a fact would be unemployed by the buyer post-merger. Businesses run on the people who work for them. By being empathetic and transparent during the M&A process, you’ll come off not as a CEO that employees are glad to see leave, but as one that they are sad to see go.
Finalize Deal Terms
It’s been said several times in this article already, but buyers are unlikely to have the best interests of the seller at heart. Finalize escrow holdback, indemnity scope and extensions, employee options, disclosure schedule language, litigation treatments, consents and approvals, risk allocations, termination provisions, and closing conditions with the utmost finality in a way that you feel values your company. If you’ve followed our advice, your investment banker and lawyer should be of immense help during this process.
Have A Contingency Plan
Nobody wants an M&A deal to fall through, but that doesn’t mean it won’t happen. Whether it’s keeping another buyer close to your sleeve or figuring out a way for your company to continue if a merger falls through, you’ll want to have a contingency plan available throughout the M&A process.
Are you struggling to find a buyer for your company or negotiate the terms of an M&A? Let our team at HJR Global help! Whether they’re looking to increase funding, buy out another company, or sell their own, we help business owners make sure their company reaches its true potential. To find out more about what we can do for you, click here.
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