‘To err is human’, it’s said … but for sellers and buyers alike, the M&A process is surely not a good time to make mistakes.
Here are the top five errors made by sellers in M&A deals according to Forbes magazine, and our take on each.
1.Not Anticipating the Time and Effort Involved
The number one spot goes to failure to anticipate the sheer amount of time and effort that’s involved in the seller’s exiting via the M&A process.
Due diligence from the buyer’s side alone takes up a lot of time, and patience is required here – something that’s not easy for business people used to fast-paced environments and eager to move on.
It’s not unusual for an acquisition to take between six and 12 months – a short amount of time in the grand scheme of things, but one that can feel painfully slow to the seller living through the process.
2. Not Creating a Competitive Sale Situation
It’s common sense that lining up multiple potential buyers and therefore having a more competitive sale situation is likely to result in a much better deal for the seller, in the shape of both a higher price and better deal terms - and yet sellers very often negotiate with only one potential buyer, effectively boxing themselves in to a less ambitious deal.
Added to this, the seller and buyer are also often personally known to each other, which further jeopardizes the seller’s chances of getting the best exit deal.
In an ideal seller’s world, an auction situation or some other type of competitive bidding process is best. Here, multiple bidders – whether actual or perceptional - can be played against each other to achieve the best deal for the seller.
3. Not Having a Decent NDA
The M&A process requires extensive disclosure, so a well-drafted non-disclosure agreement (NDA) is crucial to protect the seller’s propriety company information – and ‘well-drafted’ here means that it includes specific M&A-related protections for the seller.
The need for a thorough NDA becomes even more important when the potential buyers are strategic competitors, making the situation even more sensitive and important clauses being needed around potential buyers not being able to contact the seller’s customers, suppliers and employees.
Incredibly, good NDAs, as essential as they are, are often sacrificed in the ‘rush to sell’.
4. Not Having an Online Data Room
Although it’s very time-consuming to put together, an online data room that’s set up early on in the M&A process really helps the ultimate success of a deal.
Containing all of the essential information to which potential buyers would need access, the online data room lets buyers complete their due diligence more quickly and much more easily, as well as making the preparation of the all-important disclosure schedule much easier for the seller.
This said, under-estimating the importance of the online data room remains one of the top five mistakes made by sellers during the M&A process.
5. Hiring the Wrong Legal Team
There is, of course, a place in this world for the generalist corporate lawyer – but the complex M&A arena isn’t it!
Sellers need to have an expert lawyer or legal team on board whose primary specialism is mergers and acquisitions, and they shouldn’t settle for anything less.
The legal team needs to be experienced in the field, au fait with structuring M&A deals and all the accompanying documents and agreements, as well as being suitably responsive to the seller’s needs and prepared to hand-hold the seller through the whole process.
For more information about selling your business, contact our expert team at Benchmark International.