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What are the advantages and disadvantages of hiring an advisor for M&A negotiations?

Answers

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

The answer is that it depends on many things.
Are you the acquiror or acquiree?
Are you a public or private company?
What prior M&A experience do you have?
What are the strengths and synergies of the proposed M&A transaction?
What are the expected values and valuation criteria of both parties?
Will this be a private transaction, or is there a case for shopping the deal around?

Generally I would rcommend a professional advisor with prior M&A experience, whether it be an accountant, lawyer, banker, consultant, or combination. About the only disadvantage I can think of is that this will cost you a fee, and likely a large one, but assuming the M&A transaction is consumated this will be buried in the proceeds as part of the net price /cost. To the extent that you have an accountant/lawyer, they will in any case need to become familiar with the facts of the transaction in order to be able to provide their ongoing audit and legal services in the proper context, so even if you did all the M&A work yourself, there would still be extra time and fees to prepare and familiarise themselves with the transaction and consequences thereof.

Typically, most business people ae running their own business and are not involved in regular or frequent M&A transactions, hence they are unfamiliar with the various issues of due diligence, tax structures and consequences, negotiation processes, valuation factors, proforma forecasts, common disaster areas, etc. Similarly they will have little or no experience or familiarity with the market and recent deal comparables for valuation purposes, nor with the histories and risks of various earnout models. Having an experienced professional on your side during an M&A transaction can result in obtaining better terms, higher valuations, and avoidioance of mistakes.

Additionaly, beyond acquiror/acquiree negotiations, there is responsibility to the Company's shareholders. If a deal is consumated without professional advice, it may be that certain shareholders are subsequently disappointed with the terms of the deal, and litigate for fraud or negligence in your fiduciary responsbilities. Remember that in an M&A transaction there may be conflict of interest between the management who want to protect their jobs or accelerate option or bonus triggers under change of control agreements, and shareholders who are invested for the long term.

Bottom line, consult an advisor!

Topic Expert
Sunil Thukral
Title: Controller/Technical Accounting Advisory..
Company: Consultant
(Controller/Technical Accounting Advisory/ SEC Reporting, Consultant) |

Some very good thought provoking points raised by Simon above.

The only thing I will like to add is it will also depend on your comfort level and experience of managing the transactions in the past. There are many different types of impact of the M&A transaction, so you might need to hire consultants at various stages of the transaction. In any event, at the minimum, you will need to get the following personnel involved:

1. Accountants - they should be involved to conduct the accounting due diligence. On the buy side, they can help iron out all the technical accounting issues, assess the impact on the future earnings (e.g. the amortization of the definite-live intangibles, etc.), impact on future reporting, etc. While I was conducting due diligence for the the buy side of the transactions, I had made use of a detailed checklist to ensure that we got the correct purchase price equation. On the sell side of the transaction, there are other issues as to reporting of the carved out pieces of the business. This can be really time consuming.

The accountants will also help you with the reporting and sign-off from the auditors.

2. Lawyers - The lawyers will ensure that the contracts are properly drawn out. If you do not have an internal team for lawyers, you almost certainly need to engage the external lawyers.

3. Corporate Development team - they will help with valuation and reviewing the models to ensure that proper value of the business. Also they can help with the corporate due diligence.

Also you will need to maintain a delicate balance with the investors relations team - as they will work on the communication strategy.

In any event, all of the team members will need to work together to ensure a successful execution. Based on the structure of your company, you can either hire a firm who can provide guidance on all the issues related to the deal, or hire individual firms to handle only the pieces of the work that you are not familiar with.

All the best!

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

My mantra to companies I talk to, is do those things that you know how to do and leave the rest to experts.

instance, in most small to medium size companies, their credit and collections functions are weak if non-existant, because they don't have the expertise in house to do it properly.

Same for M&A, unless you know how to do all of the aspects Sunil mentioned, (plus having funding and financing contacts)you are much better off hiring someone who is an expert.

Kinda like do-it-yourself brain surgery. Not a good idea.

Topic Expert
Dana Price
Title: Vice President, M&A
Company: McGraw Hill Education
(Vice President, M&A, McGraw Hill Education) |

Although I am that person, I always recommend it, especially on the sell side. You have a business to run, which is demanding enough, and having an independent set of eyes is always a plus. But you must, absolutely must, be comfortable with the person or persons you hire. Make sure they also come recommended from someone else.

Mark Webb
Title: CFO
Company: Mindshare Technologies, Inc.
(CFO, Mindshare Technologies, Inc.) |

I have a related question about the accounting for the costs of these types of outside service providers. I think that generally the guidance is that these transaction costs are expensed, but the "costs of issuing securities" are charged to equity. Anyone have any experience on how narrowly/broadly that is defined? I am wondering if I expense almost everything except for the cost to print stock certificates or if even the legal fees to draft docs should be charged to equity?

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