When It Comes to M&A, Doing Your Homework Can Make All the Difference
Whether it’s in business or in life, there is no magic formula or one-size-fits-all approach that will lead to your desired outcome.
The same can be said for mergers and acquisitions (M&A). M&A comes in all shapes and sizes, and investors and business owners alike need to consider the complex issues involved in the process. Fortunately, there are principles that are common in every scenario. Consider the process of selling a home, for example—though a different transaction, in many ways, the process is very similar to M&A.
One of the first things people do is seek out the advice and guidance of advisors who are well versed in the market. During the home-buying process, these are the people who can tell you the best time to buy, how much you can afford, how much the mortgage will be and how much the down payment will be. This ensures that you’ve done your research to the best of your abilities. When it comes time to signing on the dotted line, you know you’re making the most informed decision possible. There’s no room for guesswork, because by now, you’re an expert on the matter.
The exact same process of doing your homework can apply to M&A. Essentially, the beginning of the process can be likened to a home inspection prior to making the actual purchase—you need to understand the inner workings of the house before taking your next step. Make sure you are aware of the tax implications, what the legal costs will be and what the competition of that particular space looks like. Executing your homework and research can alter the course of a deal—it can protect a company from making bad investment decisions or it can help you proceed with confidence.
Similarly, a seller should be equally concerned about doing their homework. When you’re selling your house, you need to plug into experts to figure out costs in your area. You need to talk to a real estate agent to see what homes are selling for. And you need to make sure your home is clean, tidy and well-maintained so that it’s appealing to potential buyers. You probably won’t want to buy a house that’s in a complete state of disarray. The same applies to the M&A process—you need to make sure your financials are clean and transparent to give potential buyers an honest look inside your business. There are no questions, no surprises and no confusion. In the end, this makes the sales process easier to follow for all parties involved, and a buyer is more likely to move forward with a company that already has everything in order.
Just like buying a house, a corporate M&A is often the most important financial decision a person will have to make in their life. Too often, people fail to consider the thought required to make a good decision. But no matter the transaction—whether it’s in life or in business—doing your homework is the best first step to set yourself up for success.
R. Scott Sutton, CFE, is vice president of Safeguard Acquisitions Inc. and vice president of franchise development for Safeguard Franchise Sales Inc. At Safeguard, Sutton is responsible for the company’s Business Acquisitions and Mergers (BAM) program. In 2014, he was named a Dealmaker of the Year Award winner given by Franchise Times® magazine. He is a board of trustee for the IFA Educational Foundation and serves as vice-chair of its strategic planning committee. Follow Sutton on Twitter @rscottsutton