Mergers & Acquisitions: Process & Tips Before You Sell

It seems like every organization is taking part in the mergers and acquisitions (M&A) trend – since 2000, more than 790,000 M&A transactions have occurred worldwide with a value of over $57 trillion. 

One of the most significant decisions an entrepreneur will make is whether – and when – to sell their business. 

If you are considering an M&A transaction, it is important to fully understand whether or not your company is ready to go to market. 

4 Actions to Take Before You Start the Merger & Acquisition Process

1. Plan for the exit
2. Consider external market timing
3. Generate a robust financial model
4. Create a strategic vision

1. Plan for the exit of your merger or acquisition

Thinking about your exit strategy may not be top of mind while running your business, but it is critical to maximizing the value of your company.  

Companies that plan in advance create a unique advantage by strategically building their company into an entity that is desirable to a buyer. 

Your plan could include tailoring your operations to what a buyer would find desirable, ensuring your structure is set up to minimize tax impacts of a sale, and/or ensuring a smooth transition for your leadership team. 

“Companies achieve optimal value when they are bought, not sold,” Jim Reilly, founder of Stonepine Advisors, explains. “You need to prep yourself from the beginning and understand your ecosystem and how you can fit into the buyers’ strategy.”

By taking this route, you can determine who you should approach about potential M&A partnerships. Even if the timing isn’t quite right in the market, at least your organization will be on buyers’ radars. 

2. Consider external market timing for potential mergers or acquisitions

When it comes to M&A, many market variables impact when a deal can happen. 

XRocket.io founder, Mark Addison, describes the journey as, “a lot of magic needs to align – you can have the perfect company at the right time with the right numbers, but if the market isn’t there at that moment to support an acquisition, then it could be for nothing.” 

Companies need to take a deep look at both the growth in their sector and general GDP growth to determine whether there is a need for their product or organization at that time.

For example, companies may need to see whether there is consistent market growth in their specific industry, service, or technology over time.

Also, being aware of what market capital is available in the industry is crucial. 

3. Generate a robust financial model for your merger or acquisition

One of the biggest mistakes companies make when looking to be acquired is not understanding their own financial statements.

Understanding the financial health of a company may seem like a given, but the financial information needed for a deal goes beyond revenue, margin and growth.  

It includes ensuring historical financial information is accurate and complete. Importantly, it also involves building detailed 2-3 year financial projections as well as growth models – both standalone and in consideration of market variables like trends and product needs.

The prep work for an M&A transaction must be meticulous because any surprises during the process can quickly derail a deal.  

Start by thinking through what a 2-3 year forecast looks like and how you will get there.  Build your projections with appropriate inputs from sales, marketing, manufacturing, distribution, etc. and ensure you model various growth and market impact scenarios.   

Build a data room and ensure all your documents are electronically stored securely and are readily accessible to ease the due diligence process for potential buyers.

Also, ensure you are tracking important information such as change of control provisions in your vendor contracts and customer contracts to facilitate a smooth transition. 

4. Create a strategic vision for your merger or acquisition path

It’s not enough to have strong sales and profits — you need a robust, strategic vision.

Put yourself in the buyer’s mindset: if your company has a niche product, buyers will want to know how to build that niche into a more significant share of the market, specifically through the acquisition.

Sellers may need to engage in robust initiatives like expanding supply chain operations, expanding go-to-market strategies, shoring up financial systems, and integrating the cloud into finance and accounting processes.  

It’s also essential to identify key leaders with a strategic vision to help the company get to the next level, particularly as it relates to the company’s competitors in the market.   

Whether that’s a CEO, CFO, COO or other executive, the vision needs to be united and focused on the future, including a potential sale of the company. 

M&A: The Deal is Done, Now What?

Final Thoughts on How to Best Prepare for Your M&A

Ensuring the completion of these four essential steps will best allow you to prepare your business for a merger or acquisition.