When two or more companies come together to be merged with mutual agreement and form a new company, it is called a Merger and when a company takes over another company but not forming a new company, it is an Acquisition. Common reasons for Mergers and Acquisitions are to increase operational efficiency, to acquire a patented technology, to diversify products and services, decreased competition, and others.
Following are the eight key considerations to be considered in Mergers and Acquisitions (M & A):
1. Valuation Negotiability
The seller company can negotiate with the offer price. Negotiation depends on multiple key factors such as Your growth compatibility with your competitors, type of buyer company (financial buyer or strategic buyer), your firm’s recent 409A valuation, your company’s historical financial status, and growth, etc. Thus consider making a counteroffer because buyers rarely offer the best deal initially.
M & Ais a time-consuming process, generally 4 to 6 months. However, it can be shortened with the help of investment bankers by controlling the auction sale process strictly. If the seller company keeps its financial records, corporate records, contracts, and patents in the cloud room, the M & A process can be completed in a shorter period.
3. Financial Statements
The selling company should prepare its financial statement in accordance with GAAP (Generally Accepted Accounting Principles). It helps to attract more and more bidders for the company’s acquisition.
4. Multiple Bidders
Sellers should set up an auction where they can get multiple competitive bids. Competitive bids will make buyers playoff against each other and the seller will get a favorable deal.
5. Intellectual Property Issues
The status of the patent of the selling company is critically important for a buyer company. They consider intellectual property legal treatment in their hands very closely.
The seller company should be ready to stand up to the buyer company’s intensive investigation. The buyer spends a significant amount to ensure that it is a buy of worth. Therefore, they investigate the nature of the seller’s contingent liabilities, legal contracts, legal proceedings risk, and patent issues, if any and much more. Online data rooms like Cloud will help the company to keep its data updated and satisfy the buyer’s needs.
7. Well-drafted Acquisition Agreement
It is more important in the interest of a selling company. The first draft of the acquisition agreement should be made by the seller’s counsel.
8. M & A Legal Team
The selling company should hire a specialized outside counsel team in specific areas like taxation, employee matters, intellectual property, cybersecurity, international trade, compensation, and benefits, etc. It is a must-to-do task for a seller and unavoidable for a successful M & A process.
The Mergers and Acquisitions life cycle is broadly divided into three stages –
You can get assistance from an efficient Merger and Acquisition Services provider for guidance and support.
BFAG (Boston Financial Advisory Group) provides the best Compliance Services. We have a team of experienced professionals who can help you in maintaining your books of accounts. With BFAG taking charge of your FDI Compliance and Reporting, you can focus on deepening the partnership with foreign companies and expanding your business.
So, get in touch with us to avail of our services. Contact us in case of any assistance or queries.
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