What do I need to look out for when it comes to M&A?

QUESTION:

One of our founders asked, “What do I need to look out for when it comes to M&A? At some point somebody will want to acquire my company, and I’d like to do as much research as possible in advance.”

ANSWER:

When it comes to M&A, it is an area that can be filled with legal landmines.   In a nutshell, you need to look out for a number of issues, such as…

  • Escrow a Portion of the Purchase Price.
  • Use Earn-Outs Only As a Last Resort
  • Don’t Give Away the “Basket”
  • Watch Out for “Caps”

This is a good article to check out:  VentureBeat’s M&A Waters

Note:  Before making any business decisions based on information on this site, it is your responsibility to check with your counsel or professionals familiar with your situation.

Comments & Advice:
  1. Ethan Stone Ethan Stone says:

    By the way, this list (and the link) is aimed at buyer's issues. To a significant degree, seller's issues are the same (just different interests), but that's not true 100%. The most important thing to know is that M&A is not something you should try to do yourself. You really need a competent lawyer (i.e. not a dabbler with a form book).

  2. From a non-legal perspective, there are a number of things to think about / prepare for, such as:

    +Leverage: If you have just one interested acquirer, they write the terms; if you have multiple interested parties, you hold the leverage (especially if the acquirers are mortal enemies). Understand the competitive playing field, and work to get multiple bidders interested.

    +Speed: In most cases– assuming yours is not an overly complex company– deals should happen on a relatively expedient timeline (direct correlation between long deal cycles and likelihood of deal falling apart). Part of this is having an efficient process, and part is having effective communications.

    +Trust: An acquisition truly is a marriage; both parties need to actively build and maintain trust; if you start to see signals of unethical or unscrupulous behavior, tread carefully (or run quickly)

    +Due Dil: Prepare your due diligence package in advance (you don't want a deal to stall waiting for 'paperwork'); also, clean up any outstanding items, such as IP assignment agreements, etc.

    This list could go on an on, but those are a few starters.

    Nathan Beckord

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