Merger and Acquisition Process

The sale of a privately held company is often complex. ax It is important to consider the tax implications and related regulations when negotiating a business sale or purchase price. At DMJPS, we are experienced in leading and consulting with the merger and acquisition process. Whether you’re selling your business or looking to acquire one to add to your holdings, we can guide you through the necessary steps in merger and acquisition to ensure positive outcomes.

1. Valuation.

While this may not involve the full valuation procedures and report, it is important to reach some preliminary value before the process begins. This will allow the owners to project the proceeds and income tax, and determine if their projected after-tax proceeds accomplish their financial planning goals of selling the business.

2. Timing.

Yes, in the merger and acquisition process, there is a “right” time to sell a business; the worst time is when you have to sell. What is the status of the economic cycle of your industry? Are you coming off a bad year or successive bad years? What would the sales prospect be like in 12 or 24 months compared to now?

3. Determine prospective buyers.

This is one of the undervalued steps in a merger or acquisition. Usually, the business owner has some very good ideas about who the prospective buyers may be. Do some research on these prospective buyers. Have they made any acquisitions lately?

4. Think outside the box.

Are the key employees the prospective buyers? What about introducing an Employee Stock Ownership Plan (ESOP) through your employee benefits plan into the merger and acquisition process? Think about using long-term installment notes on sales to key employees who may not have the capital to purchase up front.

5. Can you separate the real estate and the entity’s operations?

Often, a buyer will purchase the operations entity but does not have the capital to initially purchase the real estate. This situation could provide an excellent income stream by retaining ownership in the real estate while selling the business. Taking these extra steps in your merger or acquisition can make a big difference.

6. Evaluate if a business broker or investment banker should be engaged on your side of the transaction.

Certainly, these professionals can add value to the merger and acquisition process.

7. Structure and tax planning.

Typically, the sale of privately held companies is structured as an assets sale. This is where the seller maintains their old corporate entity and sells all the assets, name, and goodwill to the buyer. This will involve tax planning so the seller is not double taxed on the sale proceeds. Tax planning should be done from the beginning since the tax structure must be negotiated throughout the process.

8. Enter into confidential non-disclosure agreements with the prospective sellers.

In the merger and acquisition process, no information is given to a prospective buyer until the parties enter into an agreement that they will keep all information completely confidential and not disclose any information to anyone else.

9. Provide preliminary information to prospective buyers.

A package of preliminary information can be assembled to provide to prospective buyers. While prospective buyers must have enough information to make a preliminary evaluation of the deal, you must be careful not to divulge too much information until the letter of intent is signed.

10. Enter into a letter of intent.

Once a handshake deal is reached, the parties outline their deal in a letter of intent. A standard part of the merger and acquisition process, this brief letter outlines the parties’ intent and the agreed-upon deal.

11. Buyer’s due diligence process.

This is the buyer’s opportunity to look deep into the seller’s corporate soul and learn everything they deem necessary to ensure they want to move forward with the transaction.

12. Seller’s due diligence.

If the seller is carrying any seller financing or will continue to own the real estate and lease to the new owners, then the seller needs to do enough due diligence on the financial wherewithal of the buyer to feel secure.

13. Business as usual.

During the due diligence steps in merger and acquisition, the seller must maintain business as usual. The due diligence process can be disruptive to a seller’s business, as the seller must maintain and carry on the typical business dealings. During the merger and acquisition process, employees and customers can become aware that a deal is happening, and communication from management is critical to maintaining the company’s management structure.

14. Purchase agreement.

The buyer’s attorneys typically draft the purchase agreement, and the seller’s attorneys will review and redline. Drafts can go back and forth many times before a final agreement is reached. During these final steps in a merger and acquisition, it’s often little things not previously thought of will that have to be negotiated.

15. Employment contracts.

The buyer will often want employment contracts with the seller’s key employees.

16. Non-competition agreement.

The buyer will typically want the seller to enter into a non-competition agreement prohibiting the seller from competing with the buyer in a particular geographical area.

17. Closing.

The deal is never complete until the parties walk away from the closing table. Even then, there may be some continuing obligations from one party to the other.

Your Trusted Partner During the Merger and Acquisition Process

The steps in merger and acquisition are complex and a great deal is a stake. With offices throughout North Carolina, DMJPS works with businesses in all industries and can help ensure the best possible outcome. Contact us now for a free consultation. We look forward to speaking with you about your business and your specific needs.