As we mentioned in the previous article, the key to the success of an M&A process is to avoid making mistakes that could ultimately ruin the process or weaken our selling position and end up affecting the final value of the transaction.
The following mistakes complement those already described in our April article.
Poor time management
Failing to take into account that poor time management is the enemy of all M&A transactions. The longer an M&A process drags on, the greater the likelihood that the deal will not go through or that the terms will worsen. The seller and its advisors must have a sense of urgency to close the deal as soon as possible. It is also essential that the selling criteria by the seller-adviser are very well established and that authority is delegated to the adviser to make quick decisions on negotiation issues so that the tempo of the transaction can be maintained.
Neglecting the business
It is very important not to neglect the day-to-day responsibilities of the business during the M&A process. The process of selling a company will be extremely distracting and time consuming. However, management must be vigilant and ensure that the business continues to grow and operate efficiently in accordance with the projections shown to the buyer. One of the worst things that can happen in a sale process is that the financial situation of the company deteriorates during the process. This can kill the initial deal or result in the buyer renegotiating the price and terms.
Mismanagement of negotiations
It is a serious mistake not to give the necessary importance to the negotiation dynamics that will develop during all phases of the sale process. It is essential to try to understand what the other side cares about and wants: who is more committed to the deal, the buyer or the seller? Can you negotiate key non-financial terms in exchange for a concession on price? Is the transaction price attractive enough for the seller to be willing to accept deferred payment obligations? etc. It is important to establish a good relationship with the lead negotiator on the other side and it is never good to let negotiations become heated or antagonistic. The emotions involved in negotiating the sale of a company can play an important role. Good management of emotions will be key. All negotiations should be conducted with the understanding that all parties must achieve minimums and should be conducted as professionally as possible.
Not a credible business plan
The investor will spend a lot of time researching in detail the current market, industry trends, risks, barriers to entry, current financials and future projections of the company. Having unreasonable projections or unrealistic assumptions will negatively affect the credibility of the current management team. If the management team does not know the company’s key metrics and lacks the ability to convincingly demonstrate the reasonableness of the projections, this will cause the buyer to pause. Remember that companies are not bought generically for their past or present, but above all for their future.
Discretion and confidentiality
Developing the process as discreetly as possible is important both to avoid creating internal and external tensions. Generally speaking, nobody likes change, so the less the employees on both sides know, the better. The same goes for your suppliers, customers or competitors. Discretion is a value in M&A processes. A well-drafted non-disclosure agreement (NDA) is also essential to protect company secrets and sensitive information, especially when the buyers are strategic competitors. The NDA will require the potential buyer not to disclose or use confidential information of the seller and will restrict the buyer’s ability to communicate with employees, customers and suppliers. The NDA should also prohibit the buyer from soliciting or hiring employees of the seller if the transaction does not ultimately close. All of this for a designated period of time.
The field of mergers and acquisitions has many particularities and technicalities that require the utmost attention and specialisation. The M&A department of AddVANTE remains at your disposal to resolve any queries that may arise in relation to this article.