Selling a company is one of the most challenging things you will ever do. The M&A journey demands careful planning and the assistance of skilled professionals. CEOs of companies that have not previously undertaken M&A transactions commonly make mistakes that produce less favorable terms and prices. The wrong strategy can even altogether kill the deal. Here are the most common mistakes that an experienced M&A advisory firm can help you avoid:
- Underestimating the extensive time and effort the deal will require. Successful exits typically require 6-12 months to negotiate, and several years of advanced planning.
- Having no nondisclosure agreement, or using one that is inappropriate for the specific deal.
- Not creating a competitive sales process. Expecting that buyers will just show up is a losing strategy that, at best, gets you a lower price and, at worst, means no buyer at all.
- Failing to complete an online data room. A data room offers access to the documents a bidder in the late stages will want to review. Keep this room secure and ensure it’s ready to expedite the sales process.
- Hiring a generalist attorney, or no lawyer at all. M&A deals are complicated, demanding the input of skilled professionals who know the process and who ideally have experience in your specific industry.
- Not hiring a M&A advisor or investment banker. An advisor skilled at M&A can help you navigate the process and avoid costly mistakes.
- Not negotiating the terms of every agreement with every advisor. You need a skilled M&A advisory team, but you also need to negotiate a contract that is fair to both parties and which protects your interests.
- Not understanding competitors or market comparables. You must understand which businesses are truly comparable, not just make a hopeful guess.
- Missing documents. Incomplete contracts, books, or records are a significant red flag to most buyers.
- Not devising a complete and detailed disclosure schedule well in advance of the sale.
- Not negotiating key deal terms ahead of time, via a letter of intent. This weds both parties to specific terms, and can speed the timeline to closing.
- Not negotiating and agreeing to an acquisition agreement.
- Not understanding how time can destroy deals. The longer the process lasts, the more likely it is that the deal will fall through or that the terms will become less favorable. A sense of urgency is key.
- Not using an experienced M&A negotiator to lead the negotiation process.
- Not weighing the tax implications of the deal. Sale price alone is not the only important factor. The specific terms of the deal can trigger significant tax complications.
About Five Talents Financial Group
Five Talents is a middle market M&A advisory firm, drawing on nearly a century of collective business experience. While we can handle transactions in any industry, we specialize in providing service to owners of manufacturing, logistics, health care, plastics, recycling, funeral services, insurance businesses and industrial services.