A good rule of thumb here is that the less simply the motive for the transaction can be explained, the more likely it is to be a failure.
At the other side of this equation, are those transactions that require significant resources on the part of the acquiring firm. Loading up on debt to acquire any firm creates a pressure from day one to cut costs - never a good start for a deal, and often the beginning of the end. The media industry was about to undergo the biggest shake-up in its history, from which it is only now beginning to show signs of recovery.
Suppose the managers of two hotel chains are considering a merger. It makes sense on almost every level - financial, cultural and strategic. There is no overlap in geography, meaning regional hotel chains are joining to create a national chain. On paper, it is perfect. As soon as the deal closes, a pandemic sweeps the world, tourism stops and money dries up. The most obvious reason for failure is left till last. Management involvement is something of a catch-all answer and often incorporates many of the other reasons on this list.
A list like the one we have just outlined serves as a warning to managers that things can go wrong, even after they have seemingly taken all the right precautionary steps. Our previous article on due diligence is an excellent place for any manager looking to maximize their chances of a successful transaction and avoiding these pitfalls. Empower collaboration, efficiency, and accountability.
See all workflows. See all industries. Rebecca is a Paralegal for our Commercial Litigation team based within our Kettering office. Rebecca assists our senior fee earners with a wide range of adverse possession matters.
Rebecca is currently studying for her Graduate Diploma in Law and is in her second year of…. Reasons to choose Wilson Browne A merger with, or acquisition of, another company can appear attractive and strategically logical, but it is not always successful. But things do not always work out this way. We also complete a proforma that projects future earnings and opportunities.
Despite our best efforts, there are ways that these processes can lead to the presenting of incorrect information. The numbers we work with are provided by the sellers. If the data shared with us is incorrect, we will then be working with incorrect data and may not catch all errors. We have seen sellers overinflate growth for future years, underestimate the cost of services, or book revenue incorrectly.
We can often secure a great offer with these numbers. However, once under a letter of intent LOI , the buyer will conduct a quality of earnings review. That's often when we learn that the numbers that were provided to us are not accurate. The result? The buyer either adjusts the purchase price accordingly or pulls the offer. It's very easy to change the name of a company owner. For one reason or another, you might decide to put your spouse or child as the owner.
No big deal, right? Depends on your plans to sell the company and the regulatory standards of your payers.
That's pretty straightforward. What you may not know is that CMS, as an example, has a rule preventing organizations from undergoing a CHOW more than once every 36 months.
So, if you reported a change 24 months ago, the sale of your company to a new owner will have to wait 12 months. States often have their own set of regulations around the sale of an organization that could greatly affect how the deal should be structured.
To ensure a smooth sale, know what guidelines exist before you start the process. Adjusted EBITDA removes expenses that the seller has incurred as a business owner that the next owner will not likely incur, referred to as "add-backs. Most buyers will agree with such standard add-backs, but if a seller adds items of a questionable nature that the buyer does not agree with, the purchase price can experience a drastic adjustment.
It's important to not only understand each add-back that you list, but be ready to support why it is an expense that the future owner will not need to incur. A seller might receive an initial offer that appears generous, but once add-backs are discredited, the price may not be what was anticipated.
Communication begins with how your company is represented to buyers at the time of introductions. It becomes more intense during the negotiations of an LOI and finally during closing.
Breakdowns in communication can jeopardize a deal at any of these stages. Maintaining consistent, transparent communication throughout the due diligence process can support a smoother experience. Expectations should be made clear between the buyer and seller, better ensuring that each of their priorities for the future are aligned.
This can help avoid future culture shocks. Enlisting the expertise of a knowledgeable advisor to communicate the good, bad, and ugly between buyer and seller can help avoid discomfort and allow each party to work comfortably together after the closing. It is important to know that one person is overseeing each step of the process, from introduction to integration.
One of my most trusted advisors as a business owner was my corporate lawyer. He represented us for years and was essentially a part of the organization's family. I knew he had our best interest at heart whenever he reviewed a situation with us. He provided tremendous advice and guidance to us over the years, but one of the most important pieces of advice he shared with us was when he told us not to work with him.
I remain grateful to him for this guidance. What many of them found was doing so resulted in making the process painfully confusing, time-consuming, and frustrating, often causing the deal to fail. Sellers, most likely, have not, which is why they need a lawyer with experience in this area.
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