Mergers and Acquisitions (M&A) can be explained as a corporate finance transaction that entails the transfer of partial or complete ownership of companies. In the case of a merger deal, two organizations within a given industry join hands for the collective benefit through a streamline of operations. An acquisition deal occurs when a bigger organization acquires a smaller organisation through a complete transfer of ownership.
All you need to know about mergers and acquisitions
Merger & Acquisition transactions are usually quite complex. You need to understand the nitty-gritty of things to understand the whole process. Let’s delve deeper to learn about 11 essential pointers related to M&A deals.
Valuations are negotiable
The first thing you need to learn about M&A deals is that the M&A valuations are always negotiable. M&A deals offer flexibility when it comes to negotiating the offer price and valuations. However, the outcome of the negotiations is contingent on multiple factors, including competitors, nature of buyer (financial or strategic), valuation used in the previous round of funding, historical financial performance trends, projected financial growth, industry, etc.
It’s a long process
Merger & acquisition deals usually take a considerable amount of time to pan out. It can take a lot of time to market, negotiate and close the M&A deal successfully. Most M&A deals usually take around 4 to 6 months to close. However, the period can vary depending on factors like the buyer’s urgency, the number of bidders, and the selling process adopted by the company selling its stakes. A reliable merger and acquisitions consultant can help to speed up the process.
Buyer’s due diligence
Any merger & acquisitions deal will entail proper due diligence conducted by the buyer before closing the deal. Sellers should always anticipate a thorough due diligence investigation from the buyers. This helps the buyer understand what they are getting into and what obligations they will need to fulfil.
Thorough vetting of financial records
Another important thing that is common in most M&A deals is a thorough vetting of the seller’s financial records. A buyer will always ensure that the financial statements of the selling company are prepared under the Generally Accepted Accounting Principle (GAAP). This inspection process will view most historical financial records, related metrics, future financial projections, etc.
Multiple bidders can help the sellers to obtain a better deal
In any M&A deal where there are multiple bidders for an organisation, the selling party is bound to get a good deal. In the presence of numerous potential buyers, the selling party can list their terms and conditions along with the expected offer price. A competitive situation allows the sellers to get a fair deal or a higher price.
Need for a reliable M&A consultant and legal team
When getting the best value out of an M&A deal, you need to have a merger and acquisitions consultant by your side. In addition to this, you also need to have a good legal team to inspect the legality of your finance deal. The complexity of M&A transactions requires you to have a reliable legal team by your side.
An investment banking professional will be your biggest asset
An investment banking professional has an in-depth understanding of the mergers and acquisitions landscape. They can help design and execute an optimal sales process that helps the seller obtain the maximum value from the deal. From identifying and contacting prospective customers to arranging meetings with them, an investment banker can take care of it all.
Intellectual property assessment
Intellectual property can be a deal-breaker in the case of M&A deals, and assessing IP rights is crucial. The selling party should prepare a list of intellectual properties and support it with the required documents.
The letter of intent can be a trap
A letter of intent might make you feel that things are going well for you, but you must not get trapped with the same. Sellers usually fail to adequately negotiate the letter of intent or term sheet in M&A deals.
A definitive acquisition agreement is vital
A properly constructed definitive acquisition agreement that protects the seller’s interest plays a vital role in the successful sale.
Employee and perks issue
Most tech firms related M&A deals usually incur employee and benefits issues during the transition process. Since this is a sensitive area, you must be clear about how the perks will be rolled out.