Mergers can be a game-changer for any company that wants to expand. It can assist your firm in expanding by acquiring smaller firms. In addition, you can create better teams and develop a collaborative culture.
Harvard Business Review reports that 70-90 percent of mergers fail. Why? Due to the complexity of the process, even experienced business leaders may overlook the main indicators. You can prevent a last-minute disaster with proper preparation and prepare your business to succeed. Here are some key steps to successful mergers.
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Clean Up Your Financials
Your balance sheet is the backbone of your business. It must be transparent, accurate, and free of any questionable entries.
Your balance sheet is the backbone of your business. It should be transparent, accurate, and free of any questionable entries. Potential buyers will inspect every line item, so be prepared to explain your assets, liabilities, and equity in detail. A spotless balance sheet not only builds trust but also highlights your company’s earning potential.
Set Up a Flexible Virtual Data Room
A virtual data room is a safe place to store all your important documents. This covers contracts, financial statements, employee data, intellectual property, etc. The data rooms for legal documents facilitate the due diligence process, and the buyers are able to access the information they require with ease.
The virtual data room market has already reached a size of more than 800 million dollars, which serves to testify to its significance in contemporary mergers. Select a platform that enables regular updates to make everything up-to-date and available.
Organize Your Capitalization Table
A well-organized capitalization table is crucial for understanding ownership and potential dilution. A report by Capshare found that many founders overestimate their ownership stakes. Don’t be one of them. Your cap table should include:
This clarity helps investors understand how ownership might change post-merger.
Conduct Sell-Side Due Diligence
A buy-side diligence team will dig into all details and scrutinize every last penny of your bottom line. Hire a sell-side due diligence team to review your financials, operations, and even cybersecurity measures.
For example, inconsistent customer naming conventions in your database could inflate your churn rate. A sell-side team can identify and fix these errors before they become deal-breakers.
Cybersecurity is another critical area. A survey by Morrison & Foerster revealed that 82% of mergers and acquisitions professionals consider cybersecurity a major concern. Addressing these issues proactively can save you from last-minute headaches.
Create a Due Diligence Timeline
Before diving into due diligence, do some self-assessment. Review your contracts for change-of-control provisions, which could impact the value of your business to a buyer. For instance, these provisions might:
A study by Meridian Compensation Partners found that 75% of companies include cash severance for executives in their change-of-control provisions. Be transparent about these terms to avoid surprises.
If you’re approached by a buyer, take time to analyze the market. Your board members can provide valuable insights and help secure the best deal for your shareholders.
