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Interview Patty

5 Things You Need to Know Before Merging

Key considerations to make before saying “I do.”

1. Make the Business Case - Mergers and acquisitions are expensive, time consuming, and loaded with potential problems if not done correctly.

“Make sure you clearly understand why you are doing this deal. What do you hope to achieve?” says Robert White Jr., an attorney and shareholder at Gunster who specializes in M&A law.

2. Get the Facts Straight - Are you getting what you think you are? For example, if you’re after the other company’s business contacts and relationships, you’ll have to retain key people after the deal. If the attraction is economies of scale, then cost must be taken out of the system immediately, advises Lynore Abbott, founder of Logical Marketing, who has participated in the acquisitions of several small technology businesses. Determine where the fat is and how best to cut it.

3. Make Sure Company Cultures Mesh - As important as the actual business combination is whether the respective cultures are compatible. If they clash, the result can often splinter the entity, and destroy one, if not both, businesses. “Examine the cultural issues as carefully as if they were a balance sheet item,” Levy recommends.

Quite frankly, “Nobody wants to marry a creep. Will your employees be valued, respected? Unfortunately, sometimes the best financial deal is from the worst buyer. You don’t want to be full of regrets,” says Joe Aberger, author of Selling Your Business: Making the Right Moves, Avoiding the Costly Mistakes.

4. Think the Unthinkable - If things go wrong, it is often harder for small companies to survive. Realize this and plan accordingly. According to White, “An M&A transaction for a small company can easily become a ‘bet the company’ transaction. Be aware that a large percentage of M&A transactions do not work out as well as planned.”

Although a bride and groom rarely anticipate a divorce, planning an exit strategy for your company, much like a prenuptial agreement, is advisable. “If this is the successful business that you built from scratch, ensure its continued existence and success if the merger fails,” Levy says. It’s not unusual, he notes, to see carefully drawn mechanisms for unwinding a merger. Many mergers contemplate parallel operations for some period of time before the “eggs are scrambled” and the merger becomes concrete.

5. Avoid Crucial Mistakes - Before negotiating and signing a letter of intent, seek legal and accounting advice. According to Breland, a seemingly “non-binding” letter of intent often includes binding provisions that can cause difficulties when negotiating the definitive agreement. When a letter of intent includes language such as “best efforts” and “good faith,” the parties are leaving it up to a judge or jury to interpret what that means. A few years ago, says Breland, a large company was hit with a multi-million dollar breach of contract judgment when it backed out of a potential acquisition. The letter of intent included language that each party would use its “best efforts” to consummate the transaction, and when the buyer backed out, the seller filed suit, arguing that it failed to use its best efforts to complete the deal.

Pay attention to confidentiality/non-disclosure provisions. These provisions can seem “boilerplate”, explains Breland, but sometimes each party may have obligations to identify or mark information that is disclosed, and if some disclosed information is inadvertently not marked as “confidential,” the other side may be able to use it freely.

Read the full article at: quickbooks

Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.

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