Debt costs remain at historic lows, new public investors from overseas, strong financial markets, and strategic buyers flush with cash are among the many trends fueling Mergers & Aquisitions in 2014. On the sell-side, mistakes are both common and costly. Below are some of the top sell-side Mergers & Aquisitions mistakes and how to avoid them:
1. Misunderstanding the use of NDAs - Non-disclosure agreements are often perceived as a formality and rarely litigated. As such, you may be tempted to move forward without obtaining NDAs. However, an NDA can serve as much more than a promise not to disclose confidential information; it sets a professional tone for the entire process; it can serve as the framework for negotiating the precise terms of the disclosure; and it offers the ultimate buyer IP protection.
2. No internal due diligence - Due diligence is in the buyer's best interest, and the buyer will use its findings to its advantage. Failing to anticipate the buyer's findings puts you at an immediate disadvantage. Conduct your own internal due diligence, address problems head-on, and be prepared to overcome objections long before they are raised.
3. Failing to create a competitive environment - It's tempting to work with the first suitor who expresses an interest in your company. After all, this company is clearly interested in what you have to offer and it deserves some respect for initiating an Mergers & Aquisistions discussion. However, implementing a competitive bidding process gives you more leverage. Serious buyers will know that they need to come in with a better bid than their competitors or they will miss out.
4. Poor timing - Telling employees, customers, vendors, and other business partners about the possibility of a merger or buy-out prematurely can be disastrous. Nervous employees may seek employment elsewhere while customers may shop for a new supplier. Though announcing the deal later in the process will likely cause some disruption, it's better to delay and minimize disruption as much as possible.
5. Failing to qualify buyers - Though a deal may be on the table, is the buyer right for your company? Is the buyer serious? Does the buyer have good intentions for your company, and do those intentions align with your vision? What is the buyer's preferred deal structure and approval process? Do your own due diligence on the buyer to ensure a good fit.
The Mergers & Aquisitions process requires a great deal of soul-searching, due diligence, legal legwork, and more - on both sides of the transaction. Avoid common mistakes by following an established sell-side process, working with Mergers & Aquisitions professionals, and using M&A tools (such as a virtual data room) that facilitate the process securely.