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A Few Notes on Mergers & Acquisitions

Dr. John Psarouthakis, Executive Editor of www.BusinessThnker.com, is the Founder and former CEO of JP Industries, Inc, a Fortune 500 industrial group. that acquired 28 operations in USA and western Europe before  merging with T&N, a British group.

Because the content of this article is still relevant today as it was in 2009 when it was first posted we are reposting it today.

The successful mergers and acquisitions require a great deal more than just analysis of the financial statements of the candidate. Digging in deeply in the operating details and asking the right questions is a fundamental component of evaluating the candidate. A very involved and intense discussion of all aspects of the business is necessary.

The M&A team will be faced with many challenges and numerous time-critical deadlines and milestones to be met. Customers want to know what is going on, suppliers similarly.  During the early stages of the integration process   the board’s executive committee must closely oversee and evaluate the effectiveness of the process..

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The Successful Business Acquisition Process –The Final two summaries: -step-#15-Closing the Deal and step-#16-After the Deal is closed

Closing the Deal

This chapter reviews the closing of the deal. The key aspect of this step is the preparation and signing of the purchase agreement and other documents needed for closing.

Beyond the legal requirements of having a purchase agreement, the preparation of the document itself is an important aspect of the due diligence process.  Because of the representations and warranties a seller is obligated to vouch for, frequently, problems surface during this period that you may not otherwise uncover.  For this reason, it is very important to begin work on the purchase agreement as soon as the letter of intent is signed and you begin formal due diligence.

The momentum of closing and emotions attached to it may vary substantially, depending upon the type of seller with which you are dealing.  With a divesture from a large corporation, you are less likely to deal with a fear of closing.  The company has strategic reasons for spinning off the particular division you are buying.  On the other hand, you may not have the closing momentum and urgency that builds when dealing with the private seller.

In addition to working out details of the purchase agreement during the due diligence process, you should concurrently work on the action plan for the days and weeks after closing.  Chapter 15 covers some of the key points to consider in developing such an action plan

After the Deal is closed

Once you close the deal, you need to be prepared to go in the very next morning to meet with your management team as well as your entire staff.  What you do in the first days and weeks will set the tone for your relationship with your employees for some time to come, possibly even the duration of your ownership.  Remember that the chief concerns of your employees and managers may be somewhat different than your own agenda. Employees will be concerned, first and foremost about their own job security and future with the company now that it is under new ownership. Management shares this concern, and may also have more narrow issues facing them in their own departments, that nevertheless they may feel requires immediate attention.  An easy model to follow includes a short initial introductory meeting with management, an all-employee meeting to include all management and non-management staff, and then a third more formal meeting with management.  These meetings will set in motion the planning to carry out the three objectives of the transition: addressing your key constituencies (employees, customers, suppliers and bankers), revision of the action plan, and implementation of significant changes outlined in the plan.  Other meetings will follow in the first days and weeks, but it is essential to try to fit these first three meetings into the first day if at all possible. Continue reading The Successful Business Acquisition Process –The Final two summaries: -step-#15-Closing the Deal and step-#16-After the Deal is closed

The Successful Business Acquisition Process – Step-#13-Financing the acquisition and step-#14-Your action plan

Financing the acquisition

Financing the acquisition requires thorough and careful planning.  You need to consider the different sources of funding accessible to you.  The amount required for purchasing the company may dictate the types of sources that you seek out.  Some combination of debt and equity is likely. Be wary of overextending yourself with too much debt. On the other hand, be careful to protect your immediate family by not taking too great a risk with your personal assets.  It should not be necessary to put your entire life’s savings up for collateral.  If the deal makes sound business sense,  if a bank or other lending institution starts making unreasonable demands, check out another bank, review your business plan, or try some other approach.  Lending institutions vary from the unscrupulous to the impeccably correct.  You need to be especially cautious with any lender that is likely to take your company away from you if you fall behind on a few payments.  Check out your sources, both equity and debt, as thoroughly as you check out the seller.  Are you dealing with honest individuals?  Have you reviewed the fine print for hidden commitments that might jeopardize your ownership?  The earlier you begin to develop your financing plan, the more likely you will be ready to close, when the purchase agreement is finally negotiated and signed.

Your action plan

You can easily get so caught up in the acquisition process itself that you delay proper planning of the takeover until after closing takes place. This would be a big mistake.  Successfully  executed acquisitions require months of planning prior to closing, to assure a smooth transition.  Much of the preliminary work overlaps with a properly done formal due diligence–extensive evaluation of the company and identification of potential problems.  The remaining work, some of which may be obvious and some of which might require more problem-solving creativity, involves identifying the necessary changes and improvements that should take place and an assignment of due dates, budgets and people responsible for carrying out these changes.  A simple format is to create a short one-page action plan for each topic, identifying the issue, the action required, who is responsible, and when it will occur, along with a budget and expected results.

The acquisition action plan may be the single most important thing you can do to assure the success of your new company.  It is viewed as an extremely critical component of the successful acquisitions.  The chief (principal) operating person must be involved in the process from the start.