In private M&A transactions, many complex issues can arise. Keeping track of the various issues that need to be addressed is often onerous, leading to mistakes that may disadvantage a seller during the transaction, or even prevent the deal from closing. We’ve compiled few of those potential pitfalls below.
Failing to retain the proper professionals
A successful transaction begins before the deal. Once a seller decides to sell a company, the seller will need to ensure that the deal is structured for success from the get go. One of the first things that a seller should attend to is ensuring that the appropriate professionals are engaged to assist with the transaction. M&A deals are time-consuming and require an in-depth knowledge of the complex issues that can arise during a transaction. As such, a seller should seek out legal counsel that has extensive experience in M&A. Similarly, retaining experienced tax and financial advisers and investment bankers can be crucial in enabling a seller to take full advantage of all of the financial opportunities that may become available during the course of the transaction.
Not taking adequate precautions to protect confidential information
Once a seller has retained experienced counsel and advisers, a seller should also be alert to the potential for data breaches. Drafting a thorough non-disclosure agreement (NDA) will be essential to ensuring that a seller’s confidential and proprietary information is kept safe throughout the deal process. Without an appropriate NDA, vital company information may be disclosed to bidders who may well be the seller’s competitors. Having a well-drafted NDA will alleviate these concerns even before the deal is underway.
Not having your house in order
M&A deals involve a large amount of due diligence. If a seller doesn’t have accurate and complete records, this part of the process will be much more time-consuming and expensive than it otherwise ought to be. Having to search for missing records midway through a deal can be especially onerous and will often slow down the transaction, particularly if relevant personnel have since left the company. A prudent seller will make sure that it has easy access to all relevant records and books, and that those records are as complete as possible even before the due diligence process begins.
Letting the business go
Keeping an eye exclusively on the various issues that arise during a deal may mean that a seller inadvertently neglects the day-to-day running of the business. The savvy seller knows that allowing a company’s day-to-day operations to suffer can impact its financials, which can, in turn, negatively affect the deal that the seller is working so hard to craft. Ensuring that the business remains on target is also important in the event that the purchaser opts to walk away from the deal or the transaction otherwise fails to close. A seller who remains focused on the successful running of its company and ensures that the day-to-day operations of its business are suitably maintained will not only be well positioned for a successful outcome of a transaction, but will also be prepared to rebound in the event that the deal does not go as planned.
Failing to have a clear vision for the M&A process
At all times, sellers should make sure they have a clear goal for the M&A deal process. A seller who goes into a transaction without a clear vision of what it wants to achieve can easily lose control of the deal. This begins at the outset of the process, with the drafting of a letter of intent that clearly sets out the key terms of the deal going forward. Sellers should also be mindful of the market environment in which the deal will take place. How is the sector in which the company carries on business faring? Are the any regulatory or political issues which could bear on the outcome of the deal? Are there multiple potential bidders? What value is the seller seeking for the company? Is it likely that any transition services will need to be provided following deal close? Maintaining a clear picture of the company’s goals and long-term strategy is essential to the successful conclusion of a transaction.
The author would like to thank Dina Peat, articling student, for her assistance in preparing this legal update.