Mergers and acquisitions (M&A) look, at first glance, to be some complex form of magic. However, while they can be a bit complex, they are not difficult to understand. Essentially, the two companies are merging to become one.
There are differences between mergers and acquisitions, and the approach to dealing with buyers varies depending on the structure of the sale.
Due to this complexity, buyers and sellers often work with a business broker and a team of other professionals to ensure the sale proceeds as desired for both parties. Here are some key considerations to keep in mind before evaluating an M&A Buyer. Here is more on how to acquire a business with real estate in California.
Mergers and Acquisitions Definitions
A merger is when two essentially equal companies combine into one. Often, the names of the companies are combined, or although they operate under one umbrella, both companies retain their names. Typically, after the merger, there is only one CEO who runs both companies, and the staff is combined.
An acquisition is slightly different in that one company is generally the lead or the Buyer. The other company comes under them instead of alongside them. The company often loses its name and is absorbed into the Buyer. Separate branding disappears.
This is often actually the case with mergers as well. One company is often less equal, meaning that, in the end, it is an acquisition rather than an actual merger. The Buyer CEO frequently remains in their position, and the other company’s name eventually fades into obscurity. If your company is being acquired, it is essential to understand this. If you are developing another company or merging, it is crucial to establish what that process will entail early on.
The Mergers and Acquisitions Players
Essentially, the players are buyers and sellers, advisors, and financiers. Here is how each works.
The Seller is the individual or entity selling the company. In the case of a publicly traded company, this includes the stockholders as well. For this brief discussion, the number of sellers is irrelevant.
The Buyer is the person or group buying the business. There are a few types of buyers.
- Financial: This type of Buyer is in the business of purchasing, developing, and subsequently selling businesses. They include angel investors, venture capitalists, and private equity firms.
- Strategic: These are companies that operate in a specific industry and merge to leverage the potential benefits of combining the two companies.
- Public Investors: These buyers intend to float the company’s shares on the financial market, if they are not already listed, through an initial public offering (IPO) or issue more shares if the company is already publicly traded. This is an expensive and highly regulated option.
The Advisors are those who facilitate the transaction and ensure it proceeds forward. They are often classified by the size of the transactions they handle.
- Investment Bankers handle transactions ranging from $ 50 million on the low end to billions of dollars.
- Intermediate investment bankers handle deals ranging from $ 5 million to $ 75 million at the high end.
- Business Brokers typically handle transactions below $5 million.
These are not hard and fast rules, since there is no clear line that divides where one business ends and the other begins.
Professional services usually include accountants, attorneys, and valuation experts. Each plays a role according to their profession in the merger or acquisition process.
Lastly, the financiers are those who provide the funding for the transaction. They also fall into several categories, depending on the size of the transaction and how the businesses choose to structure the deal.
The Mergers and Acquisitions Process
The M&A process is pretty straightforward. It follows a pretty general pattern, although there can be some variations.
Choose an M&A Advisor: This is where you choose the firm that will facilitate the process. Business brokers, such as Rogerson Business Services, handle smaller transactions, while investment bankers handle larger transactions within specific industries.
Preparation: Before starting the marketing process, prepare marketing materials and a marketing plan to ensure you reach the right buying audience at the right time.
Marketing: During this time, the M&A advisor will contact and discuss the deal with potential buyers who will fall into one of the categories mentioned above.
Letter of Intent: Once a Buyer has decided to explore the purchase, they will sign a letter of intent that has two parts: confidentiality promises and a no-shop clause, which means the Seller cannot continue to offer the business to other customers until the Buyer has decided one way or the other.
Due Diligence: This is the process through which the Buyer verifies that the business is what it claims to be and has the potential for profitability that it asserts.
The Contract: Once due diligence is complete, the companies will draft a contract outlining all the terms of the sale. They tend to be lengthy, tedious, and arduous to read, but the details within can be essential.
Closing: This is the point, just like closing on a house, where both parties sign the contract and exchange assets or stock depending on the type of sale.
A Final Word
Mergers and Acquisitions can be a bit tricky to navigate, and you need to be aware of the different players, phases, and the process. A good M&A advisor is essential. Do you think you might be a candidate to sell to an M&A Buyer? Contact Rogerson Business Services today to learn how we can assist you in selling your business.
If you are considering valuing and selling your company within six to twelve months, give Andrew Rogerson, a certified business broker based in Sacramento, California, a Call Toll-Free at (844) 414-9700 or email me at support@rogersonbusinessservices.com, who services the whole state of California.