Thinking of Entering the M&A Arena? Ask These Questions First

A convergence of structural and cyclical changes has led more and more companies to look at combinations that could help them be more competitive during an era of shrinking volume and severe price pressures.

In many cases, a company begins to enter this arena by looking at an area business that may be “treading water or worse.” NAPL mergers and acquisitions expert Senior Vice President John Hyde recently offered “Top 10” lists of questions to ask and information to request (beyond financials) if you are considering such an acquisition.

“The questions and requests can help advance your conversations,” says Hyde, explaining that they seek to assess the impact of the company’s problems on the value of the business—and to ascertain how much time is left on the clock.”

Questions to Ask:

• To what extent, if any, has customer satisfaction been negatively impacted by current financial problems?

• Have they been overly aggressive on job pricing to bring in work, resulting in “churning” of cash, but training customers to expect unprofitable pricing?

• Have they lost any key employees recently?

• How would they assess the impact of the “rumor mill” that is usually fueled by suppliers?

• Are they experiencing daily cash crisis that is eating up time and energy of accounting staff and production?

• Are suppliers threatening litigation? Pending lawsuits?

• Are taxes up to date?

• Are they behind on any lease payments?

• How would they assess employee morale?

• Who are the owners and are they on the same page?

 

Information to Request

• Loan documents including guaranty documents.

• Lease agreements.

• Accounts payable aging (with comments on trouble spots).

• Equipment list, plus any recent appraisal.

• Customer analysis (no names, just a summary customer by customer, indicating who has the relationship).

• Accounts receivable aging.

• Summary of the real estate situation (e.g.: Does the company own the land on which the plant sits?).

• Summary of compensation for owners and key staff.

• A Uniform Commercial Code (UCC) search to confirm any lien holders on assets. Do this ASAP.

• Contact information for advisors.

“You are probably thinking that the questions and information requests send a negative tone, and you are right,” says Hyde. “That is one reason NAPL client members who pursue growth by acquisition bring in a consultant to politely ask the tough questions.

“Frequently, the conversation then gets easier and the task becomes ‘how can we work together’ to achieve objectives.” To learn more, stop by Booth 4023 for a free 30-minute consultation with John Hyde or contact him at 800-642-6275, ext. 6313 or jhyde@napl.org.

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