How to deal with the practical and emotional aspects of a merger or acquisition

Robert T. Pacholewski, Vice President, MelCap Partners LLC

Selling your company or merging with another company is a time-consuming process that requires meticulous attention to detail. While there are practical and necessary steps to prepare for a merger or acquisition, such as obtaining counsel, choosing an investment banker and preparing your financials for review by potential buyers, there is an emotional component as well.

“A big concern a business owner has in this situation is to prepare for  the reality of letting go of something he or she has had for many years,” says Robert T. Pacholewski, vice president at MelCap Partners LLC. “You can talk about a sale and all the positives associated with it, but the reality is, it can be difficult to let go.”

He says that while it is an exciting event, there can be remorse and doubt.

“Many business owners have spent more time with their business than with their own family. Letting go of that is a hard thing.”

Smart Business spoke with Pacholewski about how to complete the M&A process, both practically and emotionally.

What can trigger the M&A decision?

One of the triggers for a seller is age and impending retirement. Another trigger is that an owner might want to leave his or her current business to start a new enterprise or look for outside investors to get additional capital infused into the business.

On the acquisition side, a business owner  may be looking to buy another company to enter into new markets, to capture new technologies or products, to acquire a company’s management skill set or to gain production capabilities.

Who should business owners consult before moving forward with a merger or acquisition?

Owners should consult their most trusted advisers at the time a deal is put forward. Consulting with a trusted attorney, accountant or investment banker can help owners determine if they are ready to sell or merge. Many times, an investment banker can be brought into a situation by an owner’s trusted adviser. The investment banker can more fully vet the process and talk with the business owner about what is involved in the very emotional decision of merging or selling a business.

Also, business owners on the verge of an M&A decision might benefit greatly from talking with a close personal friend who has gone through a similar process to better understand what they are getting into from a business owner’s perspective. Most private middle-market business owners will only do this once, so they need to make sure they understand what they’re getting into. It can be exciting, but it can also be very difficult letting go.

What should be discussed and put in order before moving forward with a merger or acquisition?

In the event that your business is going through an expansion, launching a new product or entering into new markets, make sure that it has had enough time to come to fruition before deciding to sell. It could create a potential problem wherein the buyer might believe that the plan could be too difficult to complete  if the sale is announced during such an event.

Furthermore, it is important to get your facilities in order. This can be simple housekeeping, such as making sure facilities are clean and putting on a coat of paint.

Also make sure your company is in compliance with all laws and regulations that govern how you do business. You don’t want any negative surprises.

Once the decision to move forward is made, what are the steps that follow until the M&A process is complete?

First, determine the goals and objectives you want to achieve through the sale process and hire an investment banker whom you expect will meet them. It is not uncommon for business owners to think their company is worth more than it actually is in the market.  An investment banker will evaluate the business and present a range of value for the business. Business owners have to evaluate their goals and objectives realistically and have people around them who can help them meet their goals. A sale process can take six to 12 months to complete and it would be a major setback if expectations were unrealistic and not met.

Then put together basic information on your business, such as sales, production, customers and suppliers to create your confidential sales memorandum. This may require looking ahead two or three years and back four to five years to put all the projections and historical data together for prospective buyers.

After all the information is gathered, the investment banker will put together a group of potential buyers and market the business.  Eventually, you will enter into a letter of intent with one buyer to allow that entity to complete due diligence. It typically takes 90 days to complete the transaction.

How can business owners brace employees for the change?

Usually, the sale is kept confidential from employees until the business is sold, with the exception of key managers. When communicating that the business has been sold, it is critical to talk with your employees about the process because they want to know what it means to them. For instance, do they still have a job? Both the management team and your employees are vital to your business going forward. Make sure you communicate with them at the appropriate time.

How you present the news can vary from company to company, but generally, it’s best to talk with them in a way that is consistent with your style and philosophy.

Making the companywide announcement can be very emotional. If you’ve owned and operated a business for 30 years, your employees can become like family, and it can be a very emotional conversation.

Whatever your delivery, the general message should be that a lot of careful thought and consideration went in to the sale and you’ve found the right buyer to allow the company to move forward and prosper in the future.


Robert T. Pacholewski is vice president at MelCap Partners LLC. Reach him at (330) 239-1990 or [email protected]

Insights Mergers & Acquisitions is brought to you by MelCap

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Yahoo shares fell 5 percent in early trading.

The $9 a share offer represents a 22 percent premium over interclick shares’ closing price on Monday on Nasdaq.

Interclick, with annual revenue of about $102 million, helps advertisers identify online target audience through its open segment manager analytics platform.

Sunnyvale, California-based Yahoo, which has struggled to revive its online advertising business in the last few years, said it expects to use interclick’s offerings for its own display advertising business.

Yahoo shares fell to $14.04 in morning trade on Tuesday on Nasdaq.

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DETROIT ― Bain Capital and Carlyle Group are among three private equity firms bidding for auto parts supplier TI Automotive in an auction that could fetch around $1.5 billion, those familiar with the matter said.

London-based buyout firm Pamplona Capital Management is also involved in the auction for TI Automotive, with final bids for the business expected sometime in October, these people said.

TI Automotive, which makes fuel tanks as well as braking and powertrain components for cars and trucks, has been exploring a sale of the company since early this year but the process has been slowed down by the volatility in the financing markets in recent months, the people said.

Financing remains relatively cheap for companies with strong credit ratings. But private equity deals typically need leveraged loans and high-yield bonds — the riskier form of lending that carries some of the highest interest rates and often is the first financing to be withdrawn when credit tightens.

Wall Street banks are becoming more selective about what financing deals they commit to or stiffening lending terms, making buyout deals like TI Automotive more costly for buyers and therefore limiting their ability to pay.

TI Automotive is expected to wait until markets recover before setting a final bid deadline sometime in October, two of the people said.

The company has estimated annual earnings before interest, tax, depreciation and amortization of around $250 million and its enterprise value is seen in the range of $1.4 billion to $1.6 billion, people familiar with the matter told Reuters previously.

TI Automotive, which is headquartered in the United States but chartered in Britain, swapped most of its debt to equity and slashed costs under the British equivalent of bankruptcy during the recession. After the debt-for-equity conversion completed under Chief Executive Bill Kozyra, the company is owned by a diverse group of shareholders led by hedge funds.

Representatives for TI Automotive were not immediately available for comment. Representatives for Bain, Carlyle and Pamplona declined to comment.

Carlyle, meanwhile, is also interested in another U.S. auto parts supplier Cooper Standard, which is also considering a sale of itself and competes with TI Automotive in the fluid system segment, one of the people said.

Reuters reported in August that Cooper Standard has hired JPMorgan Chase and Lazard Ltd. to look for a buyer more than a year after emerging from bankruptcy. The company later confirmed the sale process.

Cooper Standard, which makes body sealing systems and fluid handling systems for the automotive industry, has also attracted interest from private equity firms, people familiar with the matter said. The company is valued at more than $1.5 billion, the people said.

TI Automotive and Cooper Standard are the world’s two largest suppliers of systems that control, sense and deliver fluids and vapors in vehicles. But TI has greater exposure to the fast-growing Asian markets, drawing roughly a quarter of its revenue from China and other Asian markets.

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Holders of about 72 percent of the company’s stock voted in favor of the deal while holders of less than a percent of the company’s common stock voted against it.

The merger is expected to close by the end of the month, BJ’s said in a statement.

Shares of the company, which operates 190 warehouse clubs in 15 U.S. states concentrated on the East Coast, were trading nearly flat at $50.99 on Friday morning on the New York Stock Exchange.