The previous article in this chapter discussed the need to clearly understand the fundamental motivations by the company “owners” in considering an M/A transaction. The term “owners” is used in this chapter to designate those individuals that have the ultimate authority to pursue and approve an M/A transaction. This term could refer to the entrepreneur as a sole owner, the partners with controlling interest, or the Board of Directors acting on behalf of the company’s shareholders. For venture capital back companies, the VCs, even without controlling interest may “force” the sale of the company (a “liquidation event”) in order to realize a profitable exit to their limited partners.
The motivations of each “owner” could be very different. However, a consensus among all of the controlling and highly influential individuals must be obtained. During the actual M/A transaction investigation activities, there are many issues that could stymie the process. Without a consensus to objectively consider the M/A, the process will almost certainly be doomed to failure. The consensus that is required is to agree to objectively consider the transaction. However, consensus does not imply that a transaction will, indeed, take place.
In a high level, group setting, it is easy to appear to have consensus on moving forward with an M/A discussion. However, asking each constituent group to specifically answer the relevant questions listed below will help to raise the awareness of some key issues that could easily impede or stop the transaction later. Merger discussions will disrupt the entire organization. It is better to raise and acknowledge “show-stoppers” as early in the process as possible.
Each person/controlling entity should answer…
- Why are you considering a merger?
- If the arrangement does not materialize, what do you think will be the major causes?
- Initially, what do each of you expect to gain individually, for the company, employees, customers, and prospects in completing this transaction?
- What are the personal expectations of the owners and senior managers in terms of compensation and staying active in the company?
- Are there any "cash out" provisions for certain owners/employees being considered?
- Six months after the transaction is complete, what do you expect to gain individually, and what do expect the company, employees, customers, and prospects to gain or lose?
- Eighteen months after the transaction is complete, what do you expect to gain individually, and what do expect the company, employees, customers, and prospects to gain or lose?
Answering these seven basic questions do not require an in-depth analysis. Instead, “gut feel, straight from the heart” answers are all that is required. There will probably not be universal agreement on all the questions from each individual/entity. It is not required. What is required is that there is no strongly held disagreements between the parties. It is difficult to change strongly held disbeliefs and those feelings (not facts) can torpedo the entire discussion. Find out early if fundamental issues are present.