Starting and leading a successful company is an ambitious journey that can lead to remarkable success. As you get closer to the finish line, your company may attract interest from potential buyers who see value in what you’ve created.
Whether it’s a full 100 per cent or majority stake sales, undertaking due diligence of the deal and understanding key considerations are important determinants of a successful merger and acquisition (M&A) transaction, and to ensure that each of their best interests is prioritised.
The key terms in an M&A deal
When it comes to executing a successful M&A deal, there are many things to consider.
Firstly, valuation is typically the easiest thing to agree upon. It should be agreed upon between the buyer and seller early on in the process.
Rather than narrowing our focus on valuation, one should determine the ultimate cash consideration that will enter your pocket and the possible risk of liabilities post-closing.
It is essential to draft commercial terms that are both beneficial and fair for both parties. Other than that, the liabilities of the company must be taken into account, as well as any warranties or guarantees that the founder is providing with the sale. With careful consideration of these factors, founders can have peace of mind knowing they are entering a fruitful transaction.
Also Read: Exit Strategies: Ways to get your money back besides IPOs and M&A
What to expect during the due diligence process
Understanding what to expect during the due diligence process is essential when a founder is looking to exit their company through M&A. The due diligence process involves financial, tax, operational, commercial, and legal aspects of the business, which will be closely assessed.
After signing a non-disclosure agreement with the potential acquirer, financial statements and other financial documents should be prepared or used to verify financial history and status. It is also important to review tax returns in order to determine any issues that might arise.
Moreover, potential buyers will examine all aspects of the business operations closely and review any associated contracts or documents. If there are any findings that could be less ideal, sellers could request further guarantees from sellers through representations and warranties. This part of the process can take several weeks or even months, depending on how detailed it needs to be.
How to negotiate the best possible outcome for yourself and your company
When negotiating the best possible outcome when exiting your company through M&A, it is important to recognise that every situation is unique; no two are the same. That being said, some key considerations for founders to keep in mind include understanding what you want and need from the deal and anything else that might hold value, such as continued involvement with the company or payment terms.
It is also important to evaluate counterparty offers objectively, preparing both sides for a mutually beneficial agreement and creating an organised timeline of communications and activities. As a founder, this could be a great opportunity to create success for both yourself and your company, so striving for alignment between the goals of both parties can ensure everyone walks away happy.
Prior to entering into M&A negotiations, it is critical that you are clear on your objectives and the key terms of the deal. During due diligence, be prepared to share a lot of information about your company with the potential buyer. And finally, always remember to negotiate from a position of strength to get the best possible outcome for you and your business.
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