7 Mistakes Made By Sellers in Mergers & Acquisitions
Complexity increases the risk of mistakes.
A business purchase is a big event, for both buyers and sellers. If you’re involved in a merger or acquisition (M&A) transaction, the stakes are even higher. M&A transactions involve more money, impact more people, and generally take longer to complete.
If you make a mistake during the sales process, the cost to you is much higher.
To avoid making mistakes, get help from experts. Work with the experienced business brokers at Raincatcher, and one of our M&A attorneys. With help from experts, you can make a more informed decision about a sale.
Your starting point is to understand the most common mistakes made by sellers.
7 Common Mistakes
1. Not preparing for the time required to find a buyer and complete due diligence.
Owner must understand that the M&A process has many steps. Finding a buyer and completing due diligence can take months.
M&A transactions are complex and require a buyer that understands your business and industry, and a firm that has the resources to finance the purchase. Your business broker can manage the process of finding a buyer, but the process will take time.
Due diligence is also more complex. M&A sales require more time for document review, and there are more questions to be answered.
One of the most important steps in the M&A process is structuring the deal. These types of deals are typically regulated by antitrust laws and security regulations, so it is important to have a team that understands how to navigate deal terms and documents.
2. Not finding multiple potential bidders to create a competitive sales process.
Sellers need a competitive sales process, in order to maximize the sale price and to motivate a buyer to make an offer.
Your broker can market your business to multiple buyers. They have the industry connections, and know how to effectively communicate the value of your business.
In some cases, a buyer may be interested in your business to prevent a competitor from buying your company.
If a potential buyer declines to make an offer, you’ll have other purchasers as options.
3. Nondisclosure agreements are not sufficient to protect the seller’s interests.
Your customer lists, business processes, and marketing plans must be protected.
Work with an M&A attorney to put an effective non-disclosure agreement (NDA) in place before starting due diligence with a prospective buyer. Many sellers insist on an NDA that is permanent, in order to prevent another party from using the information.
If a potential buyer drops out of the process after signing an NDA, your attorney can protect your interests. You can continue business operations without the risk of a competitor using your data.
4. Not hiring an M&A specialist for legal representation.
There are complex legal scenarios and issues make each business sale unique.
You may have complex purchase agreements with a vendor, or formal agreements with your larger customers.
An M&A attorney understands the potential legal issues of various offers to acquire. That can negotiate the NDA, manage and review due diligence information, and approve the documents needed to close the sale.
Your broker and the attorney will work together on regulations, permits, and licenses that are related to the sale.
5. Not understanding the current state of the industry and market competitors
Industry changes and economic conditions may impact your company’s sale price.
A change in technology may impact your business, and an economic downturn can affect the sale price offered for your firm.
To avoid surprises, work with experts who understand your industry. The brokers at Raincatcher understand the competitive landscape, and they’ve worked with sellers in a variety of industries.
Work with a broker who can give you a realistic estimate of your firm’s value.
6. Accounting records, contracts, and other agreements are incomplete
The due diligence process will slow down, or stop completely, if your records are not in good order.
Problems with due diligence can also frustrate the buyer. They want to complete due diligence in a timely manner, so they can make a buying decision.
Your broker will explain the documents you need for due diligence, and can help you manage the process of gathering the records. Your M&A attorney will review the documents and point out any agreements that are incomplete.
To avoid problems, don’t start due diligence until your records are organized and reviewed.
7. Not agreeing to a schedule for document disclosure
Your broker and M&A attorney can work together to create a schedule for document disclosure. If you create a schedule, your team can ensure that the document review process stays on track.
You’ll finish due diligence sooner, and close the sale in less time.
Working with Business Brokers
A business broker is a trusted advisor who can guide your through the entire sales process.
Brokers understand the seller’s motivations, and the potential obstacles to a sale. They prescreens sellers to find those who can finance the sale, and buyers who are willing to start the due diligence process. They analyze similar companies, study industry trends, and use metrics to determine the sale price.
Your broker works closely with the M&A attorney to negotiate final sale price on your behalf.
Hiring an M&A Advisor
M&A advisors provide guidance on larger sales transactions, and you should include an M&A advisor on your team.
These advisors use a consultant focus. They provide strategy and planning options for a potential seller. They add value by using a proactive focus regarding structure and timing of a transaction.
Both parties in a large transaction typically have an M&A advisor or an investment banker.
Work With a Team
Finding the right advisor depends on the size and complexity of the transaction.
Raincatcher has the M&A experience needed to work on complicated sale transactions. They work with one of Raincatcher’s M&A attorneys, or your own, and other advisors to protect your interests, understand your firm’s unique value, and to negotiate a final sale price.
Work with a team of experts to manage the complexity of an M&A sale, and to secure an attractive price for your business.