Mergers & Acquisition

M&A TIPS EVERY STARTUP CEO MUST CONSIDER

Amit Jain blog Leave a Comment

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While you are working hard to develop your idea into a successful business, at times you encounter a situation where Investment bankers show interest in helping you. Sometimes the acquirers approach you directly to make an inquiry about your progress.  The process from conversation to conversion into an M&A transaction is complex, lengthy and often impact the business functionality to a great extent. The diversion of management attention from day-to-day operations and sometimes the rumor or leak of information can affect the ability to retain customers as well as employees. In case the process takes a lot of time, then there are greater chances for the transaction to fall through.  To accelerate the process and the real chances of a successful M&A transaction with a limited pool of resources, one should be ready for acquisition by focusing on a few key areas.

Talk to right advisors

It is extremely critical to have the right advisors on your side. They will not only help you in the smooth closing of the M&A transaction but also help in negotiating a deal that can maximize your stakeholders’ value. Talk to your experienced advisors and understand the process, steps and key considerations that shall be kept in mind during the M&A discussion.  When it’s time to structure the transaction, the lawyers would focus on the deal terms and post-closing liabilities. They would also focus on indemnities, closer conditions, etc to consummate the transactions. On the other hand, the bankers (financial advisors) would focus on economics. To summarise, you should work closely with the legal and financial advisors to comprehend the acquisition process. Come up with an optimal deal structure that can maximize your stakeholders’ value.

Be active in maintaining up to date records

Acquirers always follow a systematic approach, especially the ones who have gone through an acquisition process several times. They often send you a detailed information request list for conducting due diligence, which sometimes seems to be a bit overwhelming. In my experience with several M&A transactions, at times the Target (Seller) is able to provide the information in weeks. It is the unorganized ones take months and often provide an incomplete and unorganized set of information. This often leads to confusion and chaos. To be acquisition ready, it is a healthy practice to maintain records on a systematic basis. The ideal scenario would be to maintain it in a form that can be shared easily. In order to find an appropriate solution that works for you, consult your financial and legal advisors.

Showcase Credibility

Credibility

 

Every acquirer is aware of the problems and issues faced by startups. While some may need to be addressed immediately, others may not be that important. The company may have issues pertaining to accounting or at time-related to Intellectual Property. It is advisable to be upfront and own the shortcomings rather than hiding anything. Eventually, the acquirer will probe into the issues. If at times when such issues erupt at the fag end of the transaction closer, it often leads to value adjustment or sometimes may also kill the transaction.  

Control the transaction process

In a typical M&A transaction, you will have to deal with numerous players like the key executives of the acquirer, their M&A teams, accountants, lawyers and bankers in addition to working along with your own advisors, management and board.  In such a scenario, it is advisable to prepare a working group list and designate responsibilities to facilitate effective communication between the parties as the process commences. With everyone contributing to the process, deals gather momentum and reach to the conclusion faster. As a CEO, if you are trying to manage the business along with the M&A process, you shall identify key advisors and executives who can act as the core team to handhold and navigate the successful consumption of the M&A transaction. You should meet them regularly to check whether the transaction is progressing as per your expectation.  

Observe the details carefully

It is often seen that the seller focuses only on the aggregate purchase price. However, there may be some hidden costs or provisions in terms that can significantly affect the deal economics. For instance, if the purchase price is paid in the form of stocks, then understand carefully the clause laying down the instances in which the stock can be forfeited.  Are the indemnification provisions unreasonably drafted to expose the equity holders for potential clawback of the purchase consideration? You should understand the deal terms in great details. Always seek professional advice in case of confusion or doubt. Some of these terms can have a significant impact on transaction value.

Finally, you should always be realistic and craft the value proposition prudently. Listen to the advisors, understand the market conditions and take fast action especially, when an acquirer has multiple acquisition options and may be evaluating your competitor as well. In case the acquirer is not pleased with your value proposition and the deal terms and instead decides to take over your competitor, then it will significantly diminish your position as a viable acquisition target.

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