5 tips to help you prepare for a merger and acquisition

1. Start early

It is best to prepare in advance. Start from getting the due diligence done, making sure that the business is almost ready to go through the transaction. Otherwise, the company would have to get a large volume of data assembled and prepared in a short period of time. If any elements of the data are mismatched, this will undermine the confidence of the buyers and influence the price.

In the run up to an M&A deal, we recommend taking on a professional Finance Director to begin a due diligence process up to two years before the transaction. During this time, the Finance Director (FD) would be able to assemble all the necessary documentation, including financial information and other data, such as intellectual property, legal and HR information etc. The FD would also make sure that every document tallies with other information about the company.

A lack of consistency in financial data can be very dangerous for a company since this could undermine the trust of potential buyers. Financial data has to agree with audited accounts and financial accounts which will be presented to buyers, as well as a pro-forma account that would describe the forecast for the business.

2. Price drivers – a forecast and business synergies

The forecast for the business is the key element driving its price. The forecast information should include synergy benefits, such as synergies of globalisation and sales, or synergies facilitating cross-sales – so a new buyer can sell their products to the company’s existing customers and vice versa. Product development synergies are also important, as the combination of two technologies can create products with greater market potential. The FD who is commercially aware and has been through the process before, will identify as many synergies as possible and be able to explain why the buyers will benefit from them.

The FD would also create a credible forecast that makes commercial sense for people in different areas of the buyer’s business, including marketing and sales.

Moreover, an FD would be aware of the cost synergies that could be shared by the potential buyer – cost savings that could be realised by combining the company’s processes with those of the larger business. For example, you may be able to make savings on administrative staff since the buying company already has these functions.

An FD experienced in M&As will also be able to advise the company on what kind of support they need before entering the M&A process. This could mean finding relevant legal advice, such as intellectual property lawyers, and the work that needs to be carried out before selling the business, such as health and safety analysis or employment contract negotiations etc.

3. Business as usual 

Engaging with a professional FD experienced in M&A transactions could be instrumental in helping the businesses achieve an optimum price. The CFO can undertake the M&A process and be aided by the rest of the team only when required so that business-as-usual is maintained with continued sales and normal operations throughout the transaction process.

It is important to continue with business as usual during the M&A transaction process. If the company fails to hit its sales targets during that period, the buyers will view this as a risk to the forecasts, arguing that this is indicative of the company’s lack of reliability. Since the forecast drives the company’s value, a failure to hit targets will negatively impact the valuation.