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.
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
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).