Boss Lady

5 key steps to prepare for a business merger


From time to time, companies merge to grow their businesses. Just look at the example of SolarCity merging with Tesla Motors. When the merger was announced, shareholders weren’t too happy. But since the initial shock, many have come around to the view that the merger makes sense. Musk’s goal is to get everybody off fossil fuels and onto solar-electric. SolarCity will provide the power generation, replacing traditional power plants. And Tesla Motors will replace fossil fuel vehicles, getting rid of the need for gasoline. This way, the whole process of generating energy will be green from start to finish.

The merger wasn’t without its pitfalls, however. Many worried it could affect the profitability of SolarCity. The merger highlighted the fact that businesses still need to take M&A transactions very seriously. So what can they do to maximise the chances of a great sale?

If you’re selling, insist on NDA

Before you get into any discussions with a potential buyer, make sure that you get them to sign a non-disclosure agreement. This will help to prevent any company secrets from accidentally leaking out.

Get experienced lawyers

Most companies don’t have expertise on the legal pitfalls of M&A transactions. That’s why it’s so important to hire specialist lawyers, like Jerry Sokol, to provide advice and information on the matter. Your legal representation should have a proven background in M&A law.

If you’re the CEO, don’t negotiate the M&A terms

CEOs shouldn’t negotiate M&A terms because of the potential conflict of interest. Instead, the terms should be managed by the board of directors. The board should then proceed with negotiations, trying to get as high a price as possible if they’re on the selling side. The best way to do this is to start an auction.

Beware the letter of intent

When the buyer decides that they want to acquire your company, they’ll usually send you a letter of intent. The purpose of the letter is to lock up the deal and give the buyer exclusive rights to buy the company. Of course, these letters are rarely in the interest of the seller. The exclusivity period is often an attempt to shut down the ability of the seller to attract new buyers. Plus, these letters often has rigorous requirements that aren’t always in your interest.

Avoid common preparedness issues

When a buyer comes to your company, they’ll expect to see your records. They’ll want to look through your financial stocks, invoices, minutes from meetings and so on. As a business, you need to be ready to provide this information quickly.

Your next priority is to design and build a merger schedule that details the stages of the merger. When will your accounts be integrated with the buying company accounts? When will you move your employees to the new office?

Finally, it’s important to be realistic about the amount of business you expect your company to do in the future. Don’t risk your ruining your relationship with the buyer. Always give accurate and conservative forecasts of your future business potential.

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