In a “Table of Experts” series published by the Birmingham Business Journal in the July 15th print edition,Ed Christianprovides his insight into a series of questions related to mergers and acquisitions.
Table of Experts Series: Mergers & Acquisitions: Edward Christian
Q: What is the biggest thing a company should consider when contemplating a merger or acquisition? It’s critical to have a strategic view or idea of what the desires or goals for the transaction are, both for the buyer and seller. I think, especially from a seller’s point of view, you pretty well need to define this is as something you in fact want to do and you’re not just testing because it’s a tremendous amount of time, a large expense and a huge disruption to your business.
Q: What types of companies or strategic partners should a small business owner work with when completing an M&A transaction? I think it’s important for the buyer and the seller – the seller in particular – to understand the tax implications of the transaction and how the sale or purchase will be treated for tax purposes for both the buyer and seller. This is usually significant issue and can be addressed by either or both of accountants or tax attorneys.
Q: What is a question businesses should definitely ask before making an acquisition, but often don’t? I think the question to ask is, and we’ve touched on this a little bit, is why the seller’s selling – what’s the reason for the sale?
Are there problems with customers, are there problems with the business, is the seller wanting to cash out and hit the beach, does the buyer need that seller to stay around, as was just mentioned? To me, that’s just sort of a threshold question – what’s the reason for the sale?
Q: With the retirement of the baby boomers, we’re seeing a lot of companies change hands. What has that meant for the M&A activity in the U.S.? Generally, whether because of Baby Boomers or other economic factors, the last 9-12 months have been extremely active.
Q: What should business owners keep in mind when developing an exit strategy? I would keep in mind the time horizon that the owner’s looking at, keeping in mind the time it’s going to take to sell your business or to find someone to come in after you. There are clients that are 10 years away from retirement that already have a plan in place of how they want it to go. They have both a long-term strategy of how they want it to go and how they perceive the change happening. And they also have a short-term strategy in case something happens to the founder.
Q: What are some of the legal and accounting concerns that come up in an M&A transaction? The topic that’s in every transaction are the personal indemnification obligations between the buyer and the seller. A lot of times, the owners or the seller will be a corporation or an LLC but the owners of that entity don’t comprehend at the outset that they’re standing personally behind what they’re saying and are they will to do that.
Q: What are some of the often-overlooked aspects of the due diligence process that companies should focus more on? I guess it depends on whether you’re buying or selling, but from the sale side it’s understanding of how in-depth and broad the buyers’ due diligence is going to be and all the questions that they’re going to ask, and the documents they’re going to want to see. So, you want to be market ready going in and have your house in order – all your contracts are up to date, your corporate records are in good shape and there’s nothing unwanted out there and that you are ready for the process before it begins.
Q: What types of questions should a business ask when trying to choose a strategic partner to assist with M&A transactions? I think that the comfort factor for the client – the buyer or the seller – goes way up if they feel like the lawyer, the accountant, whoever it is understands their business, what’s important to them and how their business runs, and what they do on a day-to-day basis. I think that greatly increases their company.
Q: What’s the outlook for M&A activity in the next 12 months? Are any particular industries seeing more activity than others? I think we’ve been going at a pretty heated pace for the last 12-18 months and it has continued into 2016, from what I’ve seen. I’ve talked to others and people seem to expect things to slow down the latter part of this year. However, I have not seen that coming yet. Deals are still coming in and things are still going on – going pretty hot and heavy, so we’ll see.