It is an absolute truism: “We learn from our mistakes.” Learning from the mistakes of others can prove prudent as well, especially in matters involving big money and high risk. In effort to help you avoid some common mistakes in merger and acquisition (M&A) activity, we’ll review some common pitfalls.
Skeleton in the Closet
M&A deals can be tedious. They are complex negotiations with many moving parts, including matters of personal relevance and strategic business importance. Sometimes owners are uncomfortable disclosing information that could negatively impact the deal, so they omit telling it. Our advice: Disclose.
If you are worried about how to say it, when to say it, or what to say, it is a good idea to talk to your M&A advisor about it. Chances are he’s been down the road before and can help strategically communicate the information. When buyers find out about negative situations on their own, trust is diminished and salvaging the relationship can be difficult. When buyers find out about negative situations at settlement (even from the seller), deals can go south quickly. Top salespeople sometimes leave a company, accounts get lost after negotiations begin, production hiccups occur. Own up to issues and deal with the consequences honestly and openly.
Silence is Golden
Upon making the decision to buy or sell, who should you tell? The answer? No one (or as few people as possible). It is impossible to gauge how people will react to the change. As an owner, your perspective and sphere of influence are different than that of your employees. Anyone who will be affected by the change will have an opinion and a perspective on it. It is a shame to see employees jump ship prematurely and then the deal not go through. There will be a right time to disclose plans.
We had a situation in which a deal was moving along successfully. Parties were working together to negotiate. A respectful agreement was on the horizon. Suddenly the tides changed as the seller decided to hike up the sales price of his company by $1 million. Needless to say, it was a game changer, even if the company really was worth $1 million more. The deal never happened. Within months the market changed and opportunity was lost.
Look Both Ways Before Crossing
Most owners rely on trusted advisors when engaging in M&A activity. However, when the trusted advisor does not want the deal to happen or has ulterior motives or conflicting priorities, beware. Deals have been killed by actions or inactivity of sales and plant managers in fear of losing their job after the acquisition, or attorneys and other advisors weary of losing a client after the transaction. If you sense a conflict of interest, follow your instincts. Question it. Most owners will say that “if a good deal presents itself, I’m on board 100 percent.” Make sure everyone on your team has your same level commitment.
A merger or acquisition is a big change requiring some attention. Owners wishing to explore and see what’s out there should be prepared for the divergence. Preparation for sale, entertaining offers, and negotiating terms can take time. Even if you’re just exploring opportunities, prepare a plan to make sure important matters are taken care of at the company if you must take your eye off the ball. Careful planning can prevent unnecessary loss.
Overall, it is a good idea to think through your decision to buy or sell before starting the process. When the decision to move forward is reached, proceed with caution and honesty. Be realistic in setting expectations. If you feel unprepared or ill informed, get help.
Stuart Margolis, CPA and partner at MargolisBecker LLC, provides information that helps firms operate profitably. The company is the purveyor of the industry’s “Cash is King” and “Value-Added Principles of Management”, and compiles the annual Printing Industries of America Ratios, the industry’s premier financial benchmarking tool. More information at MyPRINTResource.com/10164246.