Initial M/A Positioning

Quick Summary: Spend time in a detailed “get to know” session early in the M/A discussion.

Abstract:

Similar to the process involved with a couple during the early stages of a relationship, it is important for both parties in an M/A transaction discussion to understand some high-level attitudes and facts about the other party.  Pursuing any type of transaction is a distracting and time-consuming activity. Identifying any potential macro issues early in the process is in everyone’s best interest.

Once the motivations of both parties are clearly understood and shared, the focus needs to shift to a series of high-level considerations.  It is easy for each party to get ahead of the process and begin to focus on the seemingly endless number of open issues.  Obviously, all of the details need to be addressed and resolves – in due time.

Invariably, the initial focus, especially if investment bankers or business brokers are involved, will be on the financial structure of the deal.  As discussed, in the article on Motivations, financial issues either directly or indirectly represent the fundamental reason why the transaction is being contemplated.  However, rather than focusing on the numbers, several basic questions need to be answered first to determine if it even makes any sense to proceed with discussions.  Below is a list of those questions.  The questions are intended to spur opened discussions between both parties.  It is suggested that each company review and answer the questions internally and then in a joint meeting, share answers and discuss any potential serious differences.  Think of the questions as a “get to know each other” interaction much like a couple does on their first date.  The joint answer session will only be effective if the dialogue is open and candid.  This is no time to attempt to make a good, superficial first impression.  The process of considering a merger is a time-consuming distraction that will impact both companies.  It is far better to uncover any show-stopper, deal-breaker issues early in the process.

It will not be practical for either party to completely or precisely answer each of these questions during the early discussion stages.  Instead, the focus should be on “directional agreement” only.  The goal is to provide a deeper shared understanding and to identify any obvious deal-breaker issues as early as possible.

  1. What is the overall planned deal structure (merger, acquisition, or consolidation)?
  2. Will each company be run autonomously, or will they be run as one?  If combined, what portions will be combined and when will the transition start?
  3. Is there a match of cultures between the companies?
  4. What are the top three factors that have led to each company's previous success?
  5. Will this arrangement place an undue burden on one or both of the companies?
  6. Are both companies' law firms experienced in mergers?
  7. Are both companies' accounting firms experienced in mergers?
  8. Has a combined due diligence list available and is there a plan and time table for its execution?
  9. What should each company "know" about the other that may not be obvious?
  10. Does either company have any outstanding liabilities including potential lawsuits or tax issues that need to be shared with the other company?
  11. Does each company have audited financial statements or, at the least, financial statements in enough detail to satisfy the other party?
  12. Do both companies understand the other companies' assets and liabilities and age of equipment and other issues that may require large infusions of cash?
  13. What if the arrangement causes a six-month slip in projected revenue, is there enough cash on hand to cover the shortfall?
  14. Are the overall margins of both businesses about the same or acceptable?
  15. Are both companies posting increased sales, margins, and market share or are these metrics flat or declining?
  16. Has an overall time table been made for a decision, an announcement, and the start of integration?
  17. Do other entities need to approve the transaction?
  18. Does this make the combined company more or less attractive to a third-party potential acquirer?  Is this an issue?
  19. What are the alternatives under consideration if this arrangement is not finalized?
  20. Will the combined entity have a new name?
  21. Has thought been given to the transition of the companies to the new name?
  22. How will the relative value of both companies be determined?
  23. Are there any customer, partner, or supplier contracts or arrangements that could be negatively impacted by the proposed transaction?
  24. Are there any regulatory issues that will need to be addressed before or after the transaction is completed?
  25. Are there any competitive or other third-party entities that are likely to attempt to prevent the completion of the transaction?

 

Article Number : 7.030205   

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