Four M&A Considerations When Selling Your Business

While the sale of a company can be exciting and normally leads to a positive outcome, “the M&A process can be quite confounding and stressful.”

January 7, 2022

5 Min Read
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By PlanetOne Guest Blogger

There might not be a hotter topic in the IT space today than mergers and acquisitions (M&A). The private equity world has descended upon us, and the buzz is everywhere. In 2021, global mergers and acquisition volumes have so surpassed $4.3 trillion, according to Refinitiv data. It marks a surge from a total of $3.6 trillion reached in 2020.

In 2021, P1 Network News hosted corporate/M&A attorney Garth Stevens, Partner with Arizona law firm Snell & Wilmer. The segment was an attendee favorite, packed with substantive advice that our partners, and all business owners, need to know when it comes to selling their businesses.

For those of you who are being asked about an exit strategy, pay attention. The decision to sell can be lifechanging, and there is much to be considered.

According to Stevens, while the sale of a company can be exciting and normally leads to a positive outcome, “the M&A process can be quite confounding and stressful.”

During the P1 Network News segment, he shared four key considerations when preparing for a potential M&A event:

  1. Have you set your goals and expectations?

The most important thing for someone contemplating a sale: What are your goals and expectations from a sale transaction?  As a seller, you will want to be sure that your goals and expectations are aligned with reality. This is particularly important in terms of aligning your perspective on what your company is worth relative to what the market says and how you intend to be paid. Most buyers these days are private equity firms that do not pay 100% cash at closing and may expect you, as the owner, to retain a portion of ownership–and even remain employed for a period of time after the sale closes. They may also want to pay a (small) portion of the purchase price by giving you an unsecured promissory note.

  1. What can you be thinking about in anticipation of the sale?

First of all, if the business is owned by more than a single owner, you should work to get buy-in from all owner parties as to moving forward with a sale, or at least from those owners who comprise a majority of the company’s ownership. Second, you should do your best to get your house in order. Organize your documents and records. Update your financial records, including, if possible, having your most recent annual financial statements reviewed or even audited. If you have operational, customer or supplier issues that need fixing, get on that. The more organized and “clean” your business is going into the sale process, the easier the process will be. Buyers can lose confidence if a company targeted for acquisition is in administrative disarray, has poor financial accounting or records or has a pattern of unresolved operational problems.

  1. What to expect in the sale process?

A typical M&A deal takes anywhere from two months to six months from start to finish. Phase 1 is the most exciting phase, which may be viewed as the “dating phase.” During this phase, sellers are having discussions with prospective buyers and getting a sense of what a deal is going to look like.  Click on Page 2 to continue reading…

Once you have selected a buyer and the basic terms have been agreed to, the deal terms and structure are summarized in a non-binding Letter of Intent (LOI), which serves as menu of the key terms for reference by the deal parties throughout the transaction process. After the LOI has been completed and signed, the buyer will undertake an in-depth “due diligence” process, under which the buyer and its advisors will thoroughly examine the company or business being acquired. The buyer will kick over every rock, look at every document, and may want to talk to key employees and customers. The goal for the buyers is to really understand what it is buying and to identify any material risks or concerns.

During the due diligence phase, the parties will negotiate a comprehensive purchase agreement and any related transaction agreements. The purchase agreement will ultimately replace the LOI as the key document for the deal, and, unlike the LOI, the purchase agreement (once signed) will be binding on the parties. This stage involves a great deal of work and will require a lot of your attention. It can be a grind, so it’s important to keep your eye on the prize. Deal fatigue is common at this point.

Ultimately, if everything goes according to plan, the purchase agreement and other ancillary agreements are signed, the deal gets closed, and you’re off and running.

  1. The most important takeaway

The key to a successful and less stressful M&A deal is to find qualified and experienced advisors (especially legal and accounting) and assemble your internal team from management. Make sure your outside advisors have meaningful experience working on M&A transactions.

“You don’t go to a general practitioner for brain surgery,” stressed Garth. “If you don’t use someone who really knows the process and what is ‘market’ in terms of what goes into the deal documentation, you run the risk of agreeing to terms that you shouldn’t have, and you may leave money on the table.”

According to KPMG, deal-making activities worldwide could hit a record $6 trillion by the end of the year as businesses continue to embrace cheap financing and the pandemic recovery. The global merger and acquisition surge is set to continue into the new year, so it’s important to be prepared to have these discussions when the time is right for your business.

Ted Schuman is founder & CEO, PlanetOne. Ted founded PlanetOne in Scottsdale, Ariz., in 1992. Under his leadership, PlanetOne has grown into one of the most influential and respected go-to-market business partners in the telecom and IT industries.

 This guest blog is part of a Channel Futures sponsorship.

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