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Reduce Potential M&A Risk with Pre-Transaction Planning

Even if you’ve never considered selling your business, it usually pays to keep your options open. As such, it’s worth considering possible steps you can take to strengthen your company’s position for a transaction – whether or not you’re ready and willing to sign on the dotted line just yet.

To properly prepare for the thorough, and oftentimes arduous, due diligence process that may arise down the line if you consider a merger or acquisition, consider the below initiatives. In an M&A scenario, the longer negotiations and due diligence take, the more anxiety breeds for both the buyer and the seller.

Through careful consideration of these areas in advance of a transaction, businesses can speed up the transaction process and reduce potential M&A risks before they lead to unnecessary complications.

Complete a pre-deal financial audit. To understand the company’s full breadth of risks and current financial standing, work with a qualified auditor to confirm the business’ overall financial health and ensure financial statements are presented fairly and accurately.

Compile a comprehensive list of assets. In order to facilitate and optimize a transaction, the seller should inventory all of its assets, both tangible and intangible. Business assets can range in size and scope and in a lot of cases, the most valuable assets of an organization are its intangible assets, such as patents, contracts, processes and know-how..

Gather historical tax returns and financial statements. To assist in appropriately valuing and marketing the business at hand, it’s essential to have a comprehensive understanding of the company’s financial picture. That extends beyond the present day and should include a review of at least 3-5 years’ worth of tax returns and financial statements.

Conduct competitive research. Part of understanding the value of a business is understanding the realm in which it operates. An investment banker and/or valuation firm can assist in completing research on the business’ competitive landscape as well as assess the potential value of similar companies operating within the same niche. If this process is done far enough in advance of a transaction, it also provides the selling company an opportunity to improve on key valuation metrics specific to its industry and insight into your industry’s M&A trends.

Optimize operations. Ensure inefficient or otherwise unnecessary assets or investments are removed from the company’s equation before the transaction. This may include loss-making investments, non-operating assets, outdated infrastructure and even ongoing or outstanding litigation. These types of items will be uncovered during the due diligence process, therefore getting a jump on removing them from the transaction picture will help streamline the process.

Work on forecast models. Develop a forecast that anticipates, to the best of your ability, the value and success of the company in the short- and long-term.  Such forward-looking information can assist in developing your overall business plan and deciding whether exiting the business is the right thing for you.

Consider tax efficiencies and strategic tax plans. Work with a seasoned advisor to assess and initiate tax strategies to optimize return on your business transaction. Review potential implications of various tax strategies to identify the optimal structure, timing and details of the transaction.

Consider and account for applicable regulatory compliance demands. Ensure proper regulatory compliance for both your existing business entity and any future entities that may arise following a merger or sale. Document compliance with financial governance boards, consumer protection agencies, data privacy directives, and other state and federal regulations as applicable.

Develop a personal financial plan. Selling your business will have a profound effect on your personal financial security. Consider your personal economic goals and prepare a strategy that includes investment management and long-term financial planning.

Create and implement an effective go-to-market strategy. Gather marketing information to highlight your entity’s value proposition, including corporate website, collateral, presentations, leadership bios, etc.

This list only scratches the surface when it comes to preparing your business for a potential merger or sale. To speak to our transaction advisors and review your business’ unique selling requirements, please connect with us.

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