To match the best buyer with a seller of a business requires a lengthy M&A process and a lot of work. You don’t want all of this effort to be for naught with a busted negotiation of a purchase agreement. We offer a few simple things to keep in mind when you begin negotiating.
1. Buyer Financing
Sometimes a buyer simply can’t get the financing needed to buy a business. Assessing the buyer’s financial strength and ability to attain financing early on can help prevent a last minute halt on the deal. Not all buyers have the cash or equity to support the final purchase price of a deal. Your M&A Advisor should pre-screen potential buyers, initially assessing financial strength to see if this may be a deal breaker down the line.
2. Communication Issues
Open and honest dialogue is a must, but may be harder to achieve in an M&A deal than you think. The process can become very emotional, especially as a seller bares any imperfections and weaknesses in the company- which may not be easy to admit. If either party feels the other has not been upfront or is hiding or misrepresenting information, it is easy for a M&A deal to unravel to the land of no return. Don’t be your own worst enemy in a transaction, if you’re unsure of how to present information and create that dialog, work with your M&A Advisor first to help guide you through and prepare you.
3. Tax Issues
The structure of the sale of a business will impact tax implications for both the buyer and seller in an M&A transaction. Understanding these implications can be complex, so it is highly recommended that both the seller and the buyer engage an accountant and their financial planner in the process. At the end of the day, sellers want to fully understand the “net proceeds of a sale” and buyers want to know what the transaction will cost.
4. Legal Issues
Outstanding litigation or pending legal issues are a major M&A deal breaker. This gets back to fully disclosing all of the potential liabilities. Surprises will kill a deal. Most deals are structured so that some portion of the funds (as much as 20% of cash at closing) will be tied up in escrow for a period of one to two years after the transaction closes to protect buyers against these kinds of issues. Identifying these up-front expedites negotiations.
Seller’s Transaction Team
The best way to avoid M&A Deal Breakers is to put together a winning transaction team that can look out for your best interests. Your team will need to include the following players to ensure all parts of the M&A transaction deal run smoothly.