How to set the stage for a merger and acquisition that is fair to both parties Featured

9:01pm EDT September 30, 2012
How to set the stage for a merger and acquisition that is fair to both parties

When selling your company, parting with it can be difficult. You’ve spent countless hours growing the business from a small operation to the enterprise it is today, and that shouldn’t be minimized. But decision making in the early stages of this process can be guided more by emotion than logic, says Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti.

As the project progresses, however, he says emotion lessens and upfront planning on both sides predicates whether the deal is finalized.

“Almost always when a deal doesn’t work, it’s because the proper things leading up to the merger and acquisition weren’t done — they were shortcut — and sometimes that leaves a nasty trail that has to be picked up,” says Haffey.

Smart Business spoke with Haffey about mergers and acquisitions and what both buyers and sellers should consider.

What factors should be first considered with mergers and acquisitions?

When looking to acquire a business, determine your strategic goals. Do you want to expand geographically, add to your current type of business or acquire a tuck-in or bolt-on that could be a smaller, complementary piece to your existing company? Does it make sense to stay in your area or expand to another part of the state or country? Pricing is another factor. What can you truly afford and how will you pay for it — with your own working capital or borrow from investors, a bank or a private equity group?

On the other side, a business owner looking to sell needs to find individuals or companies with which he or she feels comfortable while getting ready for the liquidity event. Hire experienced professionals — CPAs, lawyers, investment bankers or financial advisers — who work on mergers and acquisitions. Price is important for this side of the deal, too, and could be determined by a multiple of sales, net income, or earnings before interest, taxes, depreciation and amortization (EBITDA).

Who should be a part of the transaction team?

Deals happen or don’t happen depending on advisers. For example, if you let your recent law school graduate nephew be your deal attorney, it is a disaster waiting to happen. Internally, your team would be made up of human resources, operations, marketing, finance and possibly legal advisers.

Who should be on the list of potential suitors/targets?

There are different ways to compile lists of suitors or targets. For example, some advisory firms keep lists of companies that they’re working with to continually connect dots. Other options include trade associations, contacts you know from conferences and newsletters to find those who might be interested. Also, chat with others who have gone through such transactions.

There are two types of buyers — financial and strategic. Strategic buyers are in the same business space and want to expand geographically or absorb new technology. A strategic buyer usually gives the largest selling price. A financial buyer looks to get into a new business, using his or her own means to take on a new venture. There’s nothing wrong with selling to a financial buyer — that’s how private equity groups build — but the learning curve and pieces of operations are easier and quicker on the strategic side.

How can business owners determine what to pay?

Each side should have an independent valuation done by a professional. Appraisers or valuators specialize in valuing companies for M&A purposes, which differs from valuing a company for estate tax purposes — a CPA can have specialized accreditations, such as being a certified valuation analyst or accredited in business valuation. Then, stick to the value the professionals tell you. If a business owner has a preconceived, unrealistic notion of the worth, it may be impossible to continue.

Value also depends on timing. At any point, retail, service or manufacturing may be hot or ice cold. If your business is flying high and the industry isn’t, you probably won’t get the multiple of earnings you think you’re worth as buyers won’t trust what’s going on. Value is difficult to gauge because supply and demand can jack prices up overnight — some of it not based on any financial reasoning.

After the transaction is completed, what should be done to integrate the two companies?

The make-or-break point is what you’re going to do with the individuals and assets after you purchase them. You need to know where you’re going long before you finalize the deal. Once you’ve found suitors or targets, understand the financing and have hired advisers, complete your due diligence before discussing offers and finalizing paperwork. The whole process usually takes between five and 10 months; if it’s taking longer, both parties need to take a step back and determine the holdup.

Integration ranges from taking all aspects of one organization and folding them in under another — eliminating human resources, marketing, accounting and some operations — to leaving it alone because the new company is five states away or in a new business space. The integration team should analyze the company workings to figure out if one system is better. Forget who is bigger or smaller, or whose name is on the door. The smaller company may have a far superior system because, for example, it kept up on technology.

Most people run their company, do a good job and then go home. Many employers will only have one transaction their whole life, so competent professionals are necessary to meet your needs and maximize your situation.


Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti. Reach him at (440) 449-6800 or

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