M&A checklist

Planning a merger or acquisition? Here is a checklist to help you.

1. Start in time

Generally, the process of selling a company lasts about 10 months, but very often it stretches to over a year. What is unfortunately most common is for the company sale to fail completely or for the company to be wound down without any attempt to sell it.

The only way to speed up the process and ensure the deal is to invest money, time and the services of professionals in M&A. Many companies, before they are put up for sale, contain numerous tasks that when completed would speed up and ensure the deal, but which take time.

As a buyer, you should remember that your dream acquisition is not necessarily going to come along at precisely the time you want to buy. This too is a goal that you need do some work on achieving.

2. Use a professional to help you

Using professional help saves you time and effort, reduces risks, and eases decision-making even when you are only thinking about M&A. What’s more, initial consultations with experts are generally free.

An expert can tell you right away which path is the most sensible to go down or whether your plan should be delayed or buried completely. At the same time, you’ll find out what help is available, whether you need it, and how much it costs. Experts’ fees are just a few per cent of the whole deal, meaning the cost-benefit ratio is good.

3. Gather information, demand information

Gather all the contracts, documents, blueprints, financial statements and other papers for the company from the past three years in a single file, if they fit. You cannot sell a company, and it is not worth buying one, if its documents are not in order.

Whereas a seller should check the buyer’s background, a buyer should inspect the most important documents for the company on sale. It is not worth going any further at all in a merger or acquisition if the documents you request are not supplied. The seller, on the other hand, should know that information gaps increase the buyers’ risks and reduce their willingness to pay the asking price.

You should talk to financiers and ask their opinions on whether finance could be issued for the asking price and on what terms. Financing an M&A deal is significantly harder than getting a mortgage for the same size, for example. Before disclosing important information, you should ask the buyer to sign a proper non-disclosure agreement to reduce hostile corporate espionage.

4. Create a realistic strategy

Find out what the M&A deal would mean in your case: what advantages, problems, costs and taxes it would involve and how the deal could be financed in various scenarios.

Get a realistic valuation which considers which kind of buyer would most probably buy your company and how that buyer would finance the deal. Unrealistic strategies and valuations can easily spoil the opportunities for the whole deal.

As a seller, you should remember that the buyer generally always has options — at least the option of not buying. You the seller, on the other hand, have just one item for sale. To sell it, you need to act wisely. Buyers are rarely queuing up to buy a company, and a sale built on unrealistic demands can permanently damage the reputation of the company for sale.

A buyer, on the other hand, can ruin a relationship with the seller by haggling on the asking price without a reason. Valuations done by professionals are fact-based calculations, not rough guesses.

5. Ensure the deeds are good

The length of a deed in an M&A deal has no intrinsic value, but generally if there are fewer than six pages (or more with wider spacing), it will be sure to leave out matters that are important for a safe, successful deal.

What does the deed say happens if the asking price is not paid, or the machines bought do not work or do not belong to the seller, even though they should? Investigate every matter stated in the deed. Ask what happens if things do not come through as planned and what the deed says should be done next.

You must be sure that the most important issues, at least, have been recorded in writing and that you understand what they mean in practice. The buyer has the obligation to request information and the buyer has the obligation to provide it. Consumer production does not apply to M&A. There is no use in claiming afterwards that you did not understand the contract.

A good deed prevents against future disputes and gives guidance on steps to take if surprises occur. Here too, professional help is quite useful.

6. Transfer for real, take over for real

The date the deed is signed and the date of transfer of ownership right is often not the same day. Before or when ownership right is transferred, documents such as inventories are often drawn up as the basis for verifying the sale price.

When ownership has been transferred, the seller should transfer operations for real and give way to the new owner. You should do this even if the deed specifies a transfer period during which the seller is still at the company’s disposal. The transfer period is important, but even more important is the real takeover, with which the company moves into the buyer’s hands.