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Tips for M & A Readiness

I’m sure you’ve heard it takes about three years to get your business ready for sale – I agree with that – but, have you considered what you need to get done before you deliver your first LOI (Letter of Intent) on an acquisition?

Well, let me offer you my thoughts on getting ready for M&A:

1.  Look Inward First:   Yes, really. Take a cold hard look at your business and senior management, including you and your CFO. Is your business successful, does it have a substantial net worth? Is your potential M&A internal team qualified to handle an acquisition? If not, fill the gaps before going forward.

2.    What’s the Goal of Buying?   Why do you want to buy another business instead of doing it organically? Acquisitions have significant risks too. But why do you want to buy another business – to get bigger? Is that all? Do you have strategic goals like acquiring technology, boosting market share, or snagging key executives or operating staff? Write down your goals and then apply them to your acquisition plan.

3.     What’s the Target?   Size, sector, structure. The structure of a deal is a large determinant of the size of the deal you can do. Sector is obvious – but sometimes store fixture corporations buy condos in Florida. Don’t. Stick to your knitting, what you know how to do, at least for your first deal.

4.    Assemble Your Outside Team Early:    You will need deal-savvy financial, tax and legal advice – not dabblers or generalists. Choose your financial and tax advisers firstly because they can help you with the above three aspects. Qualified M&A legal counsel can be invited to your party after you’ve addressed nos. 1.2 and 3, above. Hire specialists, as most deals are not slam dunks.

5.     Research, Dig, Ask:   The biggest single risk of buying another business is discovering bad stuff after closing the deal. Nasty surprises can cost you more than the deal value, more than your net worth. HR, human rights, product liability claims, latent tax issues, HST arrears, unsolvable governance issues, environmental problems, regulatory entanglements, and so on are just some of the black holes. Before blasting out that LOI, research the target, its owner(s) and senior management. You need to know everything about the target. Everything. No question or enquiry is inappropriate. Do all you can do from the outside of the target – credit ratings, customer reviews, employee comments on Indeed, public office searches for secured debt and litigation claims, and then, once the LOI is signed, do everything, ask every question and see everything in your due diligence review process.

6.     Obey Red Flags!    From the outset of any communications with the seller to closing, if you see any red flags, pay attention to them. Resolve them or at least note them for later discussion/negotiation with the target’s owner/seller. What are red flags? Red flags are signals, hints, smoking guns that might indicate problems, or not, might be deal breakers or not, but in every case, you should investigate and follow up on to the end. Examples are the seller being evasive to your questions, a tax reassessment notice or long delays in getting routine financial information. A seller that tries to rush the deal or encourages you to ignore your lawyer’s advice are also red flags, precursors to problems.

I could go on and on, as M&A has many facets, but I wanted to highlight what I believe are the six key long term planning items for private M&A.  I hope you find it useful and that this small piece causes you to ask more questions.

 

© Grant Buchan-Terrell 2023

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