7 Tips To Help Prepare Your Business For An Acquisition
Arranging a merger and acquisition (or ‘M&A’) can require a substantial amount of planning. The more dynamic or complex your business and all of its assets, the more documentation and records are likely to be involved in your M&A negotiations. So how do you make sure that you’ve collated all the information that you need to fulfil your duty of disclosure to prospective buyers?
We’ll be answering this question today by highlighting seven key factors to keep in mind when preparing your business for a merger or acquisition.
Your company’s financial health is typically the first assessment that’s made by buyers when conducting due diligence. Business owners are advised to evaluate their company’s recorded assets and liabilities virtually as soon as they’re looking to schedule an M&A deal. This includes everything from your business accounts to your business insurance.
Your priority should be to reduce your overall liabilities wherever possible. You can balance your liabilities to assets (L/A) ratio by increasing the costs of your products or services. If you’d prefer not to amend your L/A ratio using these methods, however, then you can present your buyers with your debt-to-assets ratio as it currently stands. It’s not uncommon for companies preparing for an M&A to fund the deal with their debt or with equity capital rather than with revenue.
If you have been restructuring to prepare for an M&A, it’s imperative you amend your company’s executive summary. This is primarily to ensure that buyers are provided with the most accurate information regarding the size and structure of your business.
Providing a concise and accurate executive summary can also help boost your own preparedness as a seller. Prospective buyers are more likely to meet you halfway in M&A negotiations if they see you’re fully aware of the value of your company. And business owners who aren’t fully aware of the size or structure of their enterprise naturally can’t have complete confidence in their own company valuations.
Alongside evaluating your finances and organisational structure, business owners are also encouraged to consider what other facets of their business would be relevant to prospective buyers when conducting their own due diligence. Put yourself in the shoes of your ideal buyer to better understand what information you should gather to help them make an informed decision.
You’ll want to ensure that all these technical assets have been tested and tagged, and that all fittings and fixed appliances have been serviced. It’s also worth investing in professional cleaning services so that your properties look well-presented.
Another element of preparing for your buyer’s due diligence is ensuring that all M&A contracts and all other documentation are prepared, easily legible, and available upon your buyer’s request. To make sure that all required documents are ready to be presented to prospective buyers, business owners must lean on experienced legal and financial professionals.
There are a plethora of moving parts to any business acquisition, and all parties involved will need to practice a certain level of professionalism as well as tact and discretion. So you want to make sure that all the figures in the negotiating room with you know exactly what language to use and what’s required of them. Having these trusted advisors at your disposal may also allow you to negotiate a higher sale price for your enterprise.
It’s preferable for business owners to secure multiple interested bidders for any M&A transaction. Having multiple interested parties places you in a strong position as a seller, as you will be more likely to enjoy fair and reasonable negotiations with your buyers.
Be sure to weigh up all the conditions of sale outlined by all interested buyers when making your final decision as a seller. You want to make sure that your buyer can provide conditions of sale that align with your goals for the acquisition, though more on this later.
There’s every possibility that legacy clients or larger clients take their business following the finalisation of your M&A deal. And if your buyers suspect that they’ve paid too much for your business, it can damage your reputation as a business owner and perhaps even hurt your company and its staff following the acquisition.
That’s why it’s imperative for business owners to secure the support of all their investors, clients, and other stakeholders prior to an M&A. Make sure that you maintain open lines of communication with all these invested figures, and ensure that their own needs will continue to be met once the deal’s been finalised.
It’s not just your own goals as a business owner that need to be considered. You also need to factor in your investors’ rights to continue receiving dividends, your clients’ rights to continue receiving a certain standard of work and service, and your employees’ rights to keep their positions at your company.
All of these elements are valid stipulations to include in the contract or conditions of your company’s acquisition – especially if you’re planning a cross-border M&A. And whilst some prospective buyers may push back on some of your conditions, others may not. So from here, it’s all about finding a buyer that’s happy to pay the right price for your enterprise and are also happy to respect your own goals as the previous owner of the business.
With all these considerations made, business owners can be rest assured that they’ve ticked all necessary boxes when preparing for an upcoming merger or acquisition. But you can never be too prepared, so be sure to revisit any documentation or amend your executive summary deck if you feel the need to do so.