Question: What should I do ahead of time so that my company is ready should an acquisition offer come through?
Answer by Charles Swan at The Virtual CFO
Preparation! G&A is often overlooked in favor of R&D and Sales and Marketing in developing companies. In order to be acquired, you will need to comply with basic corporate governance requirements (not all inclusive):
The above list highlights some of the items that will be reequired durng the diligence stage, and at closing. It can be very time consuming to gather these documents, and inability to provide them will delay a close>
It is best to start early, maintaining files(electronic is now becoming the standard) containing supporting documents, and reconciling them on a periodic basis so that you are ready to repond ASAP. This will make the process less painful, make it proceed faster, and provide a good impression on the potential acquirer.
Depending on the releative sizes of the entities, audited financial statements may have to be provided in the case of acquisition by a public company. Also, the ability to comply with SOX can be a factor during the close process.
That said, good luck!!
by Ethan Stone, Stone Business Law
Chuck’s answer is great. I’ll just elaborate a bit on a couple of points.
On the sixth bullet point (“Patents and other intellectual property documented”), remember that this includes making sure that everyone who has created IP for the company (including contractors and consultants) has executed effective, written IP assignments, preferably before they started, and that everyone who has access to trade secrets (again, remember the contractors and consultants) has executed an NDA. Also, don’t forget the need to keep track of IP you have licensed in and licensed out. Acquirers are becoming especially sensitive to open source code, so they’ll want to see a robust process for keeping track of your open source code and the licenses that apply (see this post for more information: http://www.foundersspace.com/tech/what-issues-should-i-be-aware-of-when-using-open-source-software/).
On the ninth point (“copies of major contracts”) its worth tracking some kinds of contracts that acquirers want to review comprehensively (or want to be reassured that you have paid attention to them comprehensively): NDAs (in and out), exclusive dealing agreements (binding you), agreements not to compete or not to solicit employees or customers (binding you), agreements to indemnify (binding you), and the “assignment” provisions of all of your contracts (the exact wording of assignment provisions is important in an acquisition, so the best practice is to keep a spreadsheet listing the section number and text of each provision).
It’s worth mentioning that once you start keeping track of these things systematically, they can prove useful in conducting your business. Systematic controls over IP are, of course, crucial to protecting it and avoiding problems, such as violating the license terms of open source code or exceeding the permitted uses of software you have licensed. Having a centralized system to check whose confidential information you’ve agreed to keep secret or whose employees you can’t poach, for example, can avoid embarrassing (if not worse) mistakes. So if an acquisition isn’t imminent and you’re not sure which of these tasks to tackle first, start with the ones that seem most useful to managing the business.