To make a business acquisition or merger work, it is important to know the key steps to facilitate success. Whether it is a national or international transaction, having a corporate law attorney is very important to minimize liability and maximize the financial impact for the merger or acquisition of a business.
Build a Target-Centered Strategy
To build a target-centered strategy, you need to first identify your target and the reasons for the transaction. Is it to boost market share? If so, what are the desired benefits of a greater market share? Are there synergies created by the acquisition? Perhaps you are considering an acquisition to access certain technologies or skills at a lower cost? You may be considering buying a disruptive startup to limit its growth or to sell it later for a profit. It is also important to remember that a merger or acquisition should tie into the organization’s values, mission, and vision. According to the Ivey Business Journal, a successful strategic alliance should do at least one of the following:
- Help make an objective or business goal a success.
- Boost or create a competitive advantage.
- Hinder a competitive threat.
- Mitigate a substantial business risk.
- Support strategic choices for the business.
While the legal part of a merger and acquisition is important, do not let the legal tail wag the dog.
Prioritize Due Diligence
Since the seller will focus on conveying positive information during the due diligence phase, you must be diligent and meticulous in your due diligence. The importance of this phase cannot be overstated! If you are going to pay a sum certain for a business, you need to be fully aware of what you are purchasing. Not conducting proper due diligence will cause you to pay too much for business and will cause you to have future legal and business problems that could have been avoided. It is also important to not overlook information, such as cultural or language barriers, customer relationships, employee relationships, and incentives. For example, will the two company cultures blend well? Will there be a need for a reduction in personnel? Are your strategies compatible with the needs of the target customers?
During this phase, be sure to involve the appropriate managers, advisors, and team members who will hold leadership roles during and after the transition. According to “Making Mergers and Acquisitions Work,” the authors point out that there are these three stages of due diligence:
- The first stage involves sending an indication of interest letter to the target business.
- The second stage is when you send a letter of intent (“LOI”) that the target accepts.
- The third stage involves the analysis of information and moving forward with an acquisition.
In the first stage, you must thoroughly investigate the target business. You need to know if the business is wasting time or resources, has pending legal issues, lacks sustainability for competitiveness or has other issues that could change the value of the company or cause the acquisition to not make sense for your business.
Once a target accepts the LOI, an acquirer can find out more detailed information about the target business. The three stages are like tiers when it comes to obtaining information. With each stage, more information becomes available.
In the final stage, you need to have access to enough detailed information to make an educated decision as to whether to purchase the company or not. You can review operating reports, financial statements, and many other private documents. If you determine that the acquisition of the business meets your goals and does not present facts that should stop the transaction, you can choose to move forward with the transaction.
Assess the Target’s Value
A Financial Times article highlighted an important concept of value. You must consider the intrinsic value of the target company in comparison with the market value. The market value is its financial worth and the projected value of the acquired business. While market value is very important, it is also important to consider the synergies of the business and whether or not the whole is greater than the parts. A company may be offered at a great price, but if it does not fit with what you are doing or what you want to do, even a great deal should be avoided.
However, the intrinsic value may include intangible assets that are not part of the market value. These include patents, high-profile contact lists, trade secrets, brands and more. If the value of those intangible assets makes the business worth more than its market value, the transaction is likely a good deal.
Set a Threshold Price
Set a price that is your maximum for continuing with the transaction. You must carefully evaluate the terms to make sure that the deal makes sense for your business. You should also calculate your return on your investment. Create a target payback period. Be sure to incorporate important information about cash flow and all relevant financial data. In the end, you must analyze each aspect and determine the strategic and financial impact to your business.
Develop Integration Plans for After the Business Acquisition
The success of a business merger or acquisition continues well after the actual transaction is complete. Start planning for those transitional steps long before closing. One of the most vital parts of a successful merger or acquisition is integration, and it must involve every aspect of the combined businesses to be effective. The main goal of post-merger integration is to find ways to incorporate the target business into the existing business. With that goal in mind, these are some integration steps that help facilitate success:
- Define objectives, develop discrete integration programs, and monitor them continuously.
- Using a basis of value drivers, develop teams that include key people from both businesses.
- Start designing the vision for the future business before closing and implement the plans immediately after the transaction.
- Based on integration objectives, pursue synergies.
- Develop a thorough IT integration plan.
- Prioritize cultural integration and training.
- Plan a future operating model and a new HR management strategy.
- Create a new and improved communication strategy.
- Develop or modify a marketing strategy to reflect all other new integrations.
The Importance of a Legal Advocate with Mergers and Acquisitions
The importance of having an attorney with a proven track record to oversee a merger and acquisition of a business cannot be overemphasized. Merger and acquisition attorneys offer far more detailed and personalized guidance, and they can provide invaluable information to you in the due diligence phase of the transaction, make sure the correct agreements are agreed to and all the other legal steps that need to be taken have been taken for a successful merger and acquisition.
An attorney can offer advice about finding an ideal target to meet organizational goals for a business merger. The world of business is continually changing, and this is especially true in the area of mergers and acquisitions. Despite those complexities, it is easier to manage them with the help of a dedicated and experienced merger and acquisition attorney.
If you are looking for a merger and acquisition attorney in Mercer Island, please give us a call. For almost two decades, Bryn Peterson has been handling issues related to risk management, intellectual property, mergers and acquisitions, capital projects, contracts, audits, real estate, and more. Bryn Peterson has also spent eight years providing counsel to notable multibillion-dollar and multimillion-dollar corporations.