Are mergers and acquisitions (M&A) part of your business’s growth strategy? M&A can serve as an opportunity to remove competition, improve operations, expand product lines, venture into new markets, secure valuable personnel, or acquire new technologies. Before you merge with or acquire another business, there are a few things we recommend taking into account.
Please speak with your accountant or contact one of the staff here at McNabb Lucuk LLP to discuss M&A as a potential growth opportunity to get professional advice that’s specifically tailored to your business.
Exploring M&A Opportunities
Why do I want an M&A?
Before you start shopping around for a company to buy, clearly define your business goals for a merger or acquisition. Outline where M&A fits into your business plan and understand the motivation behind including them as part of your growth strategy.
What am I looking for?
Once you understand what you are working to accomplish, start to define the criteria that you will use to evaluate potential options. You’ll want to consider the business’ industry, stage of life, market share, technology, the capital investment required, and geographic location.
Who is available?
Finding a company to merge with or acquire requires targeted research and strategic networking. There’s a number of online business sales databases (example: businessesforsale.com) and information available through commercial real estate companies that can help in your initial search. In addition, speak with professionals, such as accountants or lawyers, who may know businesses that are considering selling or who can provide you with access to new markets or industries. The ideal business may not be for sale but that doesn’t mean they won’t consider any offer or enter into negotiations if the right opportunity comes forward.
Entering into a Merger or Acquisition
Often referred to as a “Letter of Intent”, it’s important that you explicitly express your interest in merging with or acquiring the target business. This is an opportunity to capture any terms and considerations of importance to both the buyer and the seller. The letter may include purchase structure, responsibilities during and after the sale, impact on personnel, timelines, and portion of the business that is being sold. Having this important information clearly outlined early in the process can save parties time and costs later.
Conduct a Review
Do your due diligence to understand the business in consideration and how their acquisition impacts your business.
A full financial review is fairly obvious. Determine future value, debt level, brand value, outstanding contracts that need to be honoured and business assets when determining the purchase price. If possible, try to find out why the business is for sale and review all former or current legal liabilities.
What are the target business’ strengths and weaknesses? What areas do they align with your current operations and what aspects are contrasting? Does it make sense to integrate or maintain separation in operations?
You wouldn’t buy majors assets without first doing your research, so don’t skip this step when it comes to buying another business either.
Buyers may choose from a variety of financing options to pay for an acquisition.
Purchasing using Equity, such as cash, leveraging current business assets, or through partners may provide a lower level of risk, but is often more expensive.
If choosing to finance with debt, the purchaser may be exposed to more risk but at a lower cost. Debt financing options may include leveraging the newly acquired business’ assets, vendor financing (also sometimes called “vendor take back,” or VTB), or an earnout that provides the seller future compensation based on performance.
If you’re thinking about a merger or acquisition, be sure to speak with your financial and legal advisors during negotiations. A chartered professional accountant, like the staff here at McNabb Lucuk LLP, can help you spot opportunities, mitigate risks and determine how the purchase fits within your current business tax structure.