M&A Series: 5 common mistakes in the M&A process for sellersrussonxiao
Selling a company is not an easy task and is usually very time-consuming. The merger and acquisition (M&A) process require careful planning and competent professionals assisting the target company.
Here is a list of the 5 most common mistakes made by private companies attempting to sell themselves:
1. Forgetting all the effort and time the deal will take to be closed.
Successful exits through M&A are not easy. They are time-consuming, involve significant due diligence by the buyer, and require both a great deal of advance preparation as well as a substantial resource commitment by the seller. Acquisitions can often take 6 to 12 months or more to complete. So remember not to be in a hurry and be patient!
2. Not having a complete online data room.
An online data room contains all of the key information and documents that a bidder will want to check. This usually includes key contracts, patents, financial statements, employee information, and much other useful information. An online data room is very hard to put together but is essential to the successful completion of a deal. A properly prepared data room established early in the M&A process will not only allow buyers to complete their due diligence more quickly but will also give confidence to the buyer and its advisors.
3. Not hiring a great financial advisor or investment banker.
In many situations, a financial advisor or an investment banker experienced in M&A can bring value to the table by doing the following:
- Assisting the seller and its legal counsel in developing an optimal sale process
- Coordinating signing of NDAs
- Finding and contacting prospective buyers
- Assisting the seller in properly populating the online data room
- Coordinating the seller’s responses to buyer due diligence requests
- Helping to prepare an executive summary and confidential information memorandum for potential buyers
The advisor chosen should be someone of confidence, that can demonstrate its previous experiences and past deals.
4. Having incomplete books, records, and contracts.
Due diligence investigations by potential buyers often find missing documents or problems in the seller’s historical financials and documentation process, such as some of the following:
- Contracts not signed by both parties
- Management financial statements different from audited financial statements
- Missing or unsigned Board minutes or resolutions
- Missing signed leasing contracts
- Missing tax records and declarations
- Incomplete/unsigned employee-related documents, such as stock option agreements
Deficiencies and discrepancies of this kind may be so important to a buyer that the buyer will require certain matters to be remedied as a condition of closing.
5. Jumping at the First Opportunity.
To be happy with the outcome of a sale and increase the chances of it succeeding, it is important to pursue the right opportunity and not just the first one that happens to present itself. A successful deal will occur if the company that is up for sale has made itself highly desirable. This means that operations, finances, and growth potential must be on point in every way possible, as this will lure buyers and foster healthy competition, driving up the price and improving the prospective terms. Diligence and patience will go a long way in helping to secure the right sales terms and conditions.
If you are considering attracting investors or selling your company – feel free to contact us, to learn how we can support you with the process.