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Mergers & Acquisitions For Dummies
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The easy way to make smart business transactions
Are you a business owner, investor, venture capitalist, or member of a private equity firm looking to grow your business by getting involved in a merger with, or acquisition of, another company? Are you looking for a plain-English guide to how mergers and acquisitions can affect your investments? Look no further.
Mergers & Acquisitions For Dummies explains the entire process step by step—from the different types of transactions and structures to raising funds and partnering. Plus, you'll get expert advice on identifying targets, business valuation, doing due diligence, closing the purchase agreement, and integrating new employees and new ways of doing business.
- Step-by-step techniques and real-world advice for making successful mergers and acquisitions
- Covers international laws and regulations
- How to take advantage of high-value deals
Going beyond the case studies of other books, Mergers & Acquisitions For Dummies is your one-stop reference for making business growth a success.
ISBN-13: 9781394169504
Media Type: Paperback(2nd ed.)
Publisher: Wiley
Publication Date: 05-31-2023
Pages: 368
Product Dimensions: 6.00(w) x 1.25(h) x 9.00(d)
Bill Snow is an authority on mergers and acquisitions. He has held leadership roles in public companies, venture-backed dotcoms, and angel funded start-ups. His perspective on corporate development gives him insight into the needs of business owners aiming to create value by selling or acquiring companies.
About This Book 1 Conventions Used in This Book 2 What You’re Not to Read 3 Foolish Assumptions 3 How This Book Is Organized 4 Part 1: Mergers & Acquisitions 101 4 Part 2: Taking the First Steps to Buy or Sell a Company 4 Part 3: Starting the Deal on the Right Foot 4 Part 4: Firming Up the Deal 5 Part 5: Closing the Deal and Beyond! 5 Part 6: The Part of Tens 5 Icons Used in This Book 6 Where to Go from Here 6 Part 1: Mergers & Acquisitions 101 9 Chapter 1: The Building Blocks of Mergers and Acquisitions 11 Defining Mergers and Acquisitions 11 Introducing Important Terms and Phrases 12 Buyer 13 Seller 14 Transaction (also known as the deal) 16 Consideration 16 EBITDA 16 Adjusted EBITDA 17 Closing 17 Adhering to Basic M&A Rules and Decorum 18 Follow the steps to getting a deal done 18 Understand M&A etiquette 20 Know what to tell employees — and when 20 Considering the Costs Associated with M&A 21 Tallying advisors’ fees and other costs 22 Paying off debt 22 Post-closing adjustments 22 Sigh talking taxes 23 Determining What Kind of Company You Have 23 Sole proprietorship 24 Small business 25 Middle market and lower middle market company 25 Large company (and beyond) 25 Chapter 2: Getting Ready to Buy or Sell a Company 27 Considering Common Reasons to Sell 28 Retirement 28 Let someone else take the company to the next level 29 Divesting a division or product line 30 The industry is changing 31 I’ve got troubles, troubles, troubles 31 Selling a piece of the company 33 Planning Ahead to Ensure a Smooth Sale 35 Clean up the balance sheet 36 Pay off debt 37 Address legal issues 38 Trim staff and cut dead weight 38 Increase sales 39 Quantify owner’s expenses and other add backs 39 Owner, make thyself expendable 40 Exploring Typical Reasons to Acquire 41 Make more money 41 Gain access to new products and new markets 41 Implement vertical integration 41 Take advantage of economies of scale 42 Buy out a competitor 42 Prepping before an Acquisition 42 Determine the appropriate type of acquisition 42 Get your company’s balance sheet in order 42 Have the money lined up 43 Set up an acquisition chain of command 43 Buying a Company from a PE Firm 43 Understanding why PE firms sell 44 Evaluating a PE firm’s portfolio company 44 Chapter 3: Previewing the Generally Accepted M&A Process 45 Take Note! The M&A Process in a Nutshell 46 Step 1: Compile a target list 46 Step 2: Make contact with the targets 46 Step 3: Send or receive a teaser or executive summary 47 Step 4: Execute a confidentiality agreement 47 Step 5: Send or review the confidential information memorandum 47 Step 6: Solicit or submit an indication of interest 48 Step 7: Conduct management meetings 48 Step 8: Write or review the letter of intent 48 Step 9: Perform due diligence 49 Step 10: Draft the purchase agreement 49 Step 11: Show up for closing 49 Step 12: Deal with post-closing adjustments and integration 49 Exploring Two Types of M&A Processes: Auction versus Negotiation 50 Who Has It Easier, Buyer or Seller? 51 Selling is easy if you know what you’re doing 51 Buying is difficult even if you know what you’re doing 52 Following the Power Shifts in the M&A Process 53 Looking at the factors of motivation 54 Understanding who has power 55 Reading the other party’s situation 56 Maintaining as much power as possible when disclosing undesirable news 58 What to Tell Employees and When 58 Keep news of a sale process confidential 59 Never lie 59 A staggered release 59 Part 2: Taking the First Steps to Buy or Sell a Company 61 Chapter 4: Financing M&A Deals 63 Exploring Financing Options 63 Buyer uses his own cash 64 Buyer borrows money 65 Buyer utilizes Other People’s Money 65 Buyer seeks financial help from the Seller 66 Understanding the Levels of Debt 68 Surveying senior lenders and subordinated debt 68 Looking at lines of credit 68 Taking a Closer Look at Investors 69 Institutions versus individuals 69 Private equity (PE) firm 71 Strategic Buyer 73 Striking the Right Type of Deal 74 Exploring the differences among buyouts and majority and minority investments 74 Choosing an asset or a stock deal: What’s Buyer buying? 75 Examining the All-Important EBITDA 76 Making Buyers’ Return Calculations 77 Return on equity 77 Return on investment 77 Internal rate of return 78 Financing a Problem Child 78 Debt is greater than purchase price 78 The business has operating losses 79 Chapter 5: With a Little Help from Your Friends: Working with M&A Advisors 81 Choosing Wisely: Identifying Ideal Advisors 81 Utilizing Inside Advisors 83 CFO or other financial bigwig 84 Corporate development people 84 Hiring Outside Advisors 84 Consulting wealth advisors when you’re ready to sell 85 Considering an intermediary 86 Lawyering up on both sides 88 Looking at accountants and auditors for Buyers and Sellers 89 I’m the tax man! 89 Recruiting more consultants to Buyer’s team 90 Seeking friendly advice: Using friends and family as informal advisors 92 Skipping business appraisers 92 Keeping Everyone on the Same Page: Avoiding Communication Breakdowns 93 Getting Your Banker Involved 95 Chapter 6: Finding and Contacting Buyers or Sellers 97 Creating a Target List 97 Getting started 98 Expanding and winnowing the list 99 Capping the list: How many (and which) companies to include 101 Sellers on Your Mark: Contacting Buyers 103 Speaking with the right person 104 Following a script that works 107 Easy Does It: Contacting Sellers 110 Getting the call off on the right foot 111 Using a successful script 112 You’re having a serious conversation! What now? 113 Additional Tips for Getting Past Screeners 114 Recognizing who you’re dealing with 114 Overcoming screener roadblocks 115 Tracking Your Calls 118 Part 3: Starting the Deal on the Right Foot 121 Chapter 7: Assuring Confidentiality 123 Tempting Buyers with an Anonymous Teaser 123 Keeping it short and sweet 124 Including high-level financial info only 125 Touting key selling points 125 Executing a Confidentiality Agreement 126 Perusing the CA’s contents 126 Figuring out which party sends the CA 127 Determining who gets more value out of the CA 127 Handling a Breach of Confidentiality 128 Confirming a breach 129 Thinking long and hard about legal action 129 Keeping the Cat in the Bag: Advice for Buyers 130 Involving employees and advisors 130 Discussing the deal in public 130 Chapter 8: Creating and Reviewing an Offering Document 133 The Offering Document in a Nutshell 133 Compiling the Executive Summary 135 The thesis 135 Seller’s rationale for seeking a deal 140 Seller’s deal guidance 140 Presenting the Company’s Background 140 The company’s past and present 141 Ownership and legal entity 141 Employee info and benefits 142 Locations of offices and facilities 142 Real estate 143 Technology 143 Legal disclosures 143 Sharing the Go-to-Market Strategy 143 Description of market and products 144 Customer names 146 Info about competitors 146 Doing the Numbers 147 Historical financials 147 Financial projections 150 Balance sheet basics 150 Income statement basics 151 Losses on the books 153 Accounts receivable terms 153 Fixed assets (equipment) 154 Inventory 154 Intangible assets 154 Chapter 9: Properly Expressing Interest in Doing a Deal 157 Understanding the Indication of Interest 158 Including Key Bits of Information in an Indication of Interest 159 Preamble, platitudes, and Buyer background 160 The proposed deal: Valuation range and other considerations 160 The legalese 163 An enthusiastic send off 163 Chapter 10: Ensuring Successful First Meetings between Buyer and Seller 165 Understanding the Importance of Meeting in Person 166 The buyer gets to interact with key management 166 Both sides perform due diligence on the other 166 The parties gauge chemistry 167 Ironing Out Management Meeting Logistics 167 Assembling key players 168 Agreeing on a venue 168 Setting the meeting agenda 169 Perfecting the Seller’s Presentation 170 Gathering the right material 171 Making Seller’s presentation shine 171 Prepping Buyers for Management Meetings 172 Reading the Tea Leaves: Did the Meeting Go Well? 173 Part 4: Firming up the Deal 175 Chapter 11: An Insider’s Guide to M&A Negotiating 177 Keys to Negotiating Success 177 Know your position 178 Remember the goal: Closing a deal 178 Negotiate with the decision-maker 179 Bend where you can 180 Take it one day at a time 180 Remember your ABNs: Always be negotiating 180 Using Successful Negotiating Tactics 181 Say “Here’s the deal that gets it done” 181 Pick up the phone 181 Offer a conditional if-then agreement 182 Understand that the first who speaks loses 183 Don’t be afraid to haggle 183 Beware of a bad bluff 183 Avoiding Common M&A Negotiating Mistakes 184 Surviving Unforeseen Twists and Turns 186 Getting a deal gone sideways back on track 187 Negotiating in good faith 187 Chapter 12: Crunching the Numbers: Establishing Valuation and Selling Price 189 What’s a Company Worth? Determining Valuation 189 Meeting in the Middle: Agreeing on a Price 192 Testing the waters 192 Buyers: Measure returns 193 Sellers: Create a compelling valuation 194 When Buyer and Seller Disagree: Bridging a Valuation Gap 196 Using an earn-out to prove valuation 197 Settling a valuation disagreement with a Seller note 197 Paying for a company with stock 197 Selling less than 100 percent of the company 200 Dealing with Renegotiation 200 Chapter 13: LOI and Behold: Making or Receiving an Offer 203 Signaling Sincerity with a Letter of Intent 203 Understanding the Salient Issues in the LOI 205 Salutation and preamble 206 Valuation and deal structure 206 Holdback and escrow 207 Representations and warranties 207 Financing 208 Due diligence and timing 209 Approvals and conditions 209 Role of management 209 Access to information 209 Expenses 210 Exclusivity 210 Non-disclosure and publicity 210 Nonbinding agreement 211 Governing law or jurisdiction 211 Agreeing to and Extending Exclusivity 211 Considering exclusivity in pre-emptive bids 211 Running out of time: Prolonging exclusivity 212 You Have a Signed LOI — Now What? 213 Chapter 14: Confirming Everything! Doing Due Diligence 215 Digging into the Due Diligence Process 216 Getting the process underway 216 Allowing enough time for the due diligence phase 216 Covering the expense 217 Conveying the due diligence info to Buyer 218 Business as usual: Running the company during due diligence 218 Providing Appropriate Information 219 Corporate info 220 Operations 221 Financials 221 Sales and marketing info 222 Real estate and facilities info 223 Fixed assets 224 Inventory 224 Supplier info 225 Intellectual property 225 Human resources 226 Debt and financial dealings 226 Environmental concerns 227 Taxes 228 Contract information 228 Insurance 229 Litigation history 229 Governmental filings 231 Considering Requests for Additional Information 231 Chapter 15: Documenting the Final Deal: The Purchase Agreement 233 Drafting the Deal 234 Writing the first draft 234 Redlining the initial draft 235 Navigating the Final Purchase Agreement 235 Confirm the name, rank, and serial number of the deal 237 Determine what’s being sold, for how much, and when 237 Know what to bring to the closing 237 Review the representations and warranties 239 Secure against loss with indemnifications 243 Agree on how to handle a rep and warranty breach 244 Get acquainted with the exhibits and schedules 244 Part 5: Closing the Deal . . . and Beyond! 247 Chapter 16: Knowing What to Expect on Closing Day 249 Gathering the Necessary Parties 249 Walking Through the Closing Process 250 Reviewing the flow of funds statement 250 Signing the final purchase agreement and other documents 253 Distributing the funds: Show me the money! 254 Popping the champagne 254 Tying Up Loose Ends Shortly after Closing 255 Allowing time to fully close the books 255 Making a working capital adjustment 255 Chapter 17: Handling Post-Closing Announcements and Adjustments 257 Start Spreading the News 257 Telling Seller’s employees about the deal 258 Making a media announcement 259 Following Through: The Deal after the Deal 260 Closing the loop on post-closing adjustments 260 Wrapping up the contingent payments 261 Dealing with Disputes 262 Handling breaches 262 Making claims against escrow 264 Chapter 18: Come Together: Integrating Buyer and Seller 265 Planning the Integration 266 Assembling a Buyer’s transition team 266 Determining the level of autonomy 267 Covering the carve-out bases 267 Communicating with Seller before the close 268 Transition process: Planning the first 90 days 269 Culling Products and Services 271 Combining Operations, Administration, and Finance 272 Handling Personnel: Successful First Steps for New Owners 274 Addressing cultural differences 274 Resolving conflict 277 Acting like a leader at all times 279 Making friends 280 Instituting accountability 281 Firing people 282 Part 6: The Part of Tens 285 Chapter 19: Ten Considerations Prior to Signing an LOI 287 Is the Deal Too Good to Be True? 287 How Is the Buyer Financing the Deal? 288 How Much Cash Is in the Offer? 288 What Are the Conditions of Escrow? 288 Is the Deal a Stock or Asset Deal? 288 How Does the Deal Settle Working Capital Issues Post-Closing? 289 Is the Inventory 100 Percent Salable? 289 Who Pays Off Any Long-Term Debt and What Happens to the Line of Credit? 290 What Are the Tax Implications of the Seller’s Accounts Receivable? 290 Is the Seller Signing a Noncompete Agreement with the Buyer? 290 Chapter 20: Ten Major M&A Errors and How to Avoid Them 291 Assuming the Deal Is Done after the LOI Stage 291 Being Unprepared for Due Diligence 292 Asking for a High Valuation with No Rationale 292 Figuring Buyers Won’t Discover Problems in the Financials 292 Underestimating the Other Side’s Sophistication 293 Failing to Understand Who Really Has the Power 293 Withholding Material Information 293 Blabbing about the Deal Before It Closes 294 Calling the Seller’s Employees without Permission 294 Contacting a Seller’s Customers or Vendors without Authorization 294 Chapter 21: Ten Possible Ways to Solve Valuation Differences 297 Payments over Time 297 Earn-Out Based on Revenues 298 Earn-Out Based on Earnings 298 Earn-Out Based on Gross Profit 299 Valuation Based on a Future Year 299 Partial Buyout 299 Stock and Stock Options 300 Consulting Contract 300 Stay Bonus 300 Combo Package 301 Appendix 303 Index 333Table of Contents
Introduction 1