Tag Archives: M&A

New Cars for Everyone!!

Commonly referred to in the Letter of Intent (LOI), a clause or similar verbiage may be found asserting that, “from the date hereof, until the closing of the transaction contemplated by this LOI, the Company shall conduct its operations only in the ordinary course of business …” What is the definition of the phrase “only […]

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Avoiding the “Tire Kickers”

Lackadaisical buyers or “Tire Kickers” waste everyone’s time and money and should be avoided whenever possible. These casual buyers may be curious but lack the commitment to close, lack the resources to make an acquisition, have the resources but unsure of the type of business, looking for a deal but far below market value, or […]

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The Lone Wolf: A Seller’s Nightmare

“Having only one buyer is the same as having no buyers,” is a statement often quoted by professionals in the M&A marketplace. After exhausting every qualified financial and strategic buyer, private equity firms, and the like, and to no avail; what is a Seller to do about the lone prospective buyer? Seller rest assured, if […]

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Who is on the hook?

Earn-out agreements are useful but contentious tools in M&A transactions to bridge disagreements. In an earn-out, the seller agrees that a portion of the deal consideration will be contingent upon the future performance of the company. Sellers must participate in estimating their earn-out expectations and in due diligence of the likelihood of collection. The possibility […]

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So how much is it worth; valuation versus value?

Although both methods use the same reference data and terminology, there is a difference between a formal valuation and the M&A transaction value of a Company. These variations can most simply be thought of as: formal valuations value entities that own businesses and M&A bankers value businesses. The formal valuation tends to be the approach […]

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Non-disclosure confidentiality agreements, the acquisition profile and the executive summary

It is most appropriate to have targeted buyers sign a Non-Disclosure Agreement (NDA) or a Confidentiality Agreement (CA) before exchanging sensitive information regarding a seller’s potential acquisition target. Will the potential buyers sign? It depends, most times it will be signed; sometimes only after negotiating various details; potentially slowing down the sale process. A carefully […]

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The importance of the three-party Merger & Acquisition transaction

Almost all M&A transactions consist of a three-party event: the seller, the buyer and the tax collector. A myriad of tax issues must be considered and understood as part of the valuing, pricing, negotiating and structuring of a deal. Proper planning will minimize the tax collector’s share of the deal and maximize the remaining value […]

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The Blind Spot!

In M&A deals, the buyer is purchasing the future earnings of the business, along with the assets that will produce them. Although valuations are initially derived from earnings considerations, the resulting valuation includes the buyer’s right to receive the ordinary and necessary balance sheet of the business; the Company’s Enterprise Value. The Company’s Enterprise Value […]

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Beating double taxation using personal goodwill

What should matter most to a seller of a business are the after-tax proceeds. One of the roadblocks that arise in structuring a business sale has to do with the competing tax consequences of the buyer and seller. If structured properly, the seller of personal goodwill receives significant benefits with no adverse tax consequences to […]

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Navigating the acquisition agreement mind

Negotiating an Acquisition Agreement involves a complex legal process intertwined with critical business decisions. This set of documents and its terms and conditions are surprisingly unique to each deal. Agreements are a tool for allocating risk; the key components include: Consideration: structure scope of purchase, price, how/when paid, deferred consideration, earn-outs, contingent payments, employment/consulting agreements […]

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Due Diligence: Begin with the End in Mind

Confirmatory (final) due diligence in M&A transactions begins following the execution of the Letter of Intent (LOI) and should be completed when the Definitive Agreement is signed; normally, 60 days. The buyer’s purpose in due diligence is to ensure that the Target Company meets the expectations created in the selling memorandum. This process examines the […]

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Bad Consideration in a Deal may be Worse than No Deal

Few buyers make all cash offers in middle market M&A transactions; preferring to offer any number of alternative forms of consideration. In order to meaningfully compare multiple offers to one another, all consideration must be weighted to its equivalent value in cash. Consideration may include: Cash – “cash is always king” Promissory Notes – interest […]

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Preparing for the Dance, the Buyers’ List!

A key step in the sell-side merger or acquisition process is generating a list of potential acquirers. Today, M&A professionals avail themselves to extensive and expensive research tools which help them in identifying possible buyers for their sell-side clients’ businesses. This relatively straightforward exercise of identifying likely acquirers from databases may be greatly enhanced by […]

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‘Auction’ the ugly process for buyers

Once the preparation for the sale of a Company is complete, the major decision becomes what “auction” path should the sale process take. Auctions in the M&A Process are focused on eliciting competitive bidding among interested parties to facilitate the sale of a business at the highest price and on the best possible terms. The […]

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Confidentiality and Playing Close to the Vest

Most M&A professionals will warn you that you can’t keep your intentions to sell your business close enough to your vest. Confidentiality in M&A transactions is a serious concern in four areas: With employees of the selling company With customers and suppliers of the selling company With competitors of the selling company and the public […]

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Valuing a Business from a Buyer’s Perspective

Sellers and buyer’s perspective vary greatly when looking at the value of companies. When it comes time to sell, it is important that the seller consider those factors that are important to a buyer. Buyers look at the expectation of future earnings; then use the characteristics below as risk factors affecting, both positively and negatively, the […]

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Hidden Marketplaces and their “Targets”

In the current economic environment, troubled, distressed, insolvent and Chapter 11 bankruptcy businesses are presenting strategic and financial investors with attractive opportunities. Distressed transactions may provide the acquirer with a pathway to: gain access to a new client base or geographic territory; acquire assets at extremely discounted prices; effectively eliminate a competitor; or new technology, […]

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How do I prepare my company for sale?

The value of your company is in the eye of the buyer; therefore, sellers of middle-market companies should position their businesses to drive the strategic value and attractiveness before a possible sell transaction. Enhancing the value of your company is an ongoing process; sellers should prepare their company for sale 18 to 24 months before […]

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The Pepperdine Private Capital Markets Project (PPCMP); where do I go when the bank says no!?

According to the results of the PPCMP (http://bschool.pepperdine.edu/), business owners reported having increased enthusiasm about their company’s growth plans, but almost one-half of them reported the lack of necessary financial resources to successfully execute their growth strategies. There have been about 250 bank failures since the start of the financial crisis in 2007 and with […]

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Relying on a Handshake or a Letter of Intent (LOI)

In acquisitions, a Letter of Intent, or LOI, is a document that outlines the key business terms the buyer and seller agree to, which later become the basis for all agreements and documents that legally bind a business sale. Common clauses in the LOI should include who the buyer and seller are, purchase price, structure […]

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