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Overview of the M&A Process
Bank of America has done it. Donald Trump has too. So, too, have thousands of other companies. In fact, it has become a staple of the US markets: mergers and acquisitions. Spreading across all industry lines and encompassing corporations both large and small, M&A is booming. In this year alone so far there have been over 800 middle market closings with a projected value of roughly $65mm! As a dynamic means of fostering growth, more and more companies will be looking to "do the deal," making it essential for corporate managers, officers and directors to know their way around the M&A process. In this 50,000 foot view, PWP provides a practical, comprehensive, and well-rounded initiation to the ins and outs of the M&A process. This will be your entree into the M&A PWP section, a first read must. Every privately held business will ultimately either be sold, transferred or go out of business at some time in the future. Owners can create substantially more wealth by planning their exit strategy than by letting that ultimate transfer of their business sneak up on them. Unlike the market for publicly held companies (i.e. the stock market), the market for privately held businesses is grossly inefficient. Why? In short, a lack of liquidity. In order to enjoy liquidity, a critical mass of participants engaging in actual transactions is required. In the market for privately held businesses, this is by definition impossible. However, it is possible and increasingly important to get the most out of your business that you can despite the inefficiency inherent in the value determination process for private companies. Selling your business will probably be the largest and most important transaction with which you are ever involved. Owners can spend a lifetime building a company, then lose a large measure of its value by making mistakes through inexperience during a one-time event -- selling the firm. (Remember that there are essentially no second chances when selling your company.) Education on the planning and selling process is essential. You owe it to yourself, your family and others impacted by the future of your enterprise to plan the exit so that all will exit with optimum value. Getting The Business Ready to Sell Selling the company is the final and usually the most important move in an owner’s career. Selling at the right time is critical to maximizing the value of the sale. The first step in the sales process is to prepare your business to attract top-quality buyers. The owner who views his business as a lifestyle “consumption vehicle," is not thinking ahead for the long term. Using business revenues as a source to support personal spending undermines the long-term value and growth of the business. When selling suddenly becomes an option, these owners often find themselves in “behind-the-eight ball” situations. If there is a buyer, who has capital and reasonable sophistication, he is just going to exploit you. In short, savvy buyers look for personal excesses in private enterprises and pursue their identification/eradication in valuation with vigor. As a result, successful sellers typically start readying the company for sale three to five years before they actually sell it. So, when the right time comes, they are ready. The disposition of a business, particularly if family owned or closely held by a small business interest, is a multi-faceted endeavor, presenting far too many issues to explore in one short article. However, here are some basic considerations. The Scrub: Nearly all privately held businesses are operated to minimize the seller's tax liability. Unfortunately, the same operating principles and accounting methodology that minimize tax liability also minimize the overall business valuation. As a result, there is often a conflict between running a business the way an owner wants and preparing it for sale. Although it is possible to reconstruct financial statements to reflect the actual operating performance of the business, this process may also... [continued...] Want to know more? Download the White Paper "Overview of the M&A Process" for just $5.95. |
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