10 M&A Mistakes to Avoid
Posted April 1st, 2013 by Intronis Guest Blog
Last month I shared my insight on M&As and making your business more attractive to partners of all types – investors, mergers or acquisitions – whatever path appeals to you. I’ll be honest, the process is complex, and there are more mistakes to be made than most business owners recognize. So this time around, I’ll offer some guidance on avoiding those common gaffes.
M&A can help your business reach the next level, but it’s important to keep in mind these simple basic steps to ensure that you make the most of the right opportunities.
Be specific. You will not attract an investor simply by asking, “Hey, wouldn’t you like to make an investment in my business?” You will need a specific plan for what you need and how you’ll use it. Investors aren’t wheeling and dealing, they are building partnerships.
Fundraise slowly. It can be a mistake to raise too much capital too early; you can create a false sense of security. Not only will you scale too fast and lose focus, you may lull yourself into thinking that securing capital is easy. Not so, my friend.
Learn from No. Sometimes getting turned down is all for the best. In fact, it can offer you an advantage. Don’t ever miss the opportunity to ask an investor or potential buyer what concerns they have or what is missing in your business that led them to deny your request. It’s a free consultation, so take advantage.
Prepare. Selling your company is just like selling your house, you have to prepare. The real estate experts will tell you that there are many steps that happen before your “For Sale” sign goes up in the yard. The same holds true for your business. Find a broker, and leverage that professional.
Don’t be emotionally involved. This is a business deal, not a marriage. That said, don’t be too hands off either. Stay close with your broker and completely in the loop as the process advances.
Prequalify your buyers. For the same reason you want to show your house to potential buyers already approved for a loan, you want to look for prequalified investors or buyers. Otherwise, this process can be long and frustrating.
Be Honest. Make sure you understand how to put your business in the best light without misrepresentation; be direct and have your house in order before you start the process.
Don’t be limited by cash. I recommend that business owners don’t go for cash-only deals when they sell. You may want to look at other options that work better for you, such as stocks.
Keep it quiet. It is common for a deal to come to a screeching halt when a business owner inadvertently breaches confidentiality. All it takes is a casual mention over a beer with friends and you’re in trouble.
Address the transition. This is by far the most common. Planning the transition from one owner to another or for the merger of two companies can be the hardest part of an M&A. Have your key leaders involved in transition plans as early as possible, perhaps even tie financial incentives to a successful transition. That means letting a certain small circle of employees in on the plans, and I caution you to keep that group tight. For one thing, there is that confidentiality clause, but also, M&A can cause distractions, and you want to avoid that. Rather, bring a select few in to start brainstorming the transition – who handles what, what do we tell customers, how do we handle employees, etc. Start preparing to tell the team once the confidentiality lock is lifted, and be ready to answer their questions.
With a well-considered plan, M&A may be the way for your business to reach the next level. Remember what got you where you are, continue to run a great business, and be sure to consider all the possible paths to future success.
The Financial Engineer 