Mergers and Acquisitions For Dummies (27 page)
Read Mergers and Acquisitions For Dummies Online
Authors: Bill Snow
Creativity:
A creative brain is a huge asset for an advisor. Just like skinning a cat, there's more than one way to pull off an M&A deal. If one plan doesn't work, you want an advisor who can jump in with another idea.
Willingness to negotiate:
Deals rarely get done if one side is digging in its heels. Advisors who are willing to negotiate and try different ideas are what often get deals across the finish line.
Perseverance and foresight:
A good advisor, especially one of the “been there, done that” variety, knows that deal-making is often a marathon, not a sprint. It inevitably has ebbs and flows and ups and downs, and the advisor's ability to see long term, anticipate problems and the other side's next move, and stick with the deal is an enormous boon to getting deals done.
When hiring consultants ask for referrals from other members of your M&A team, interview more than one candidate, and don't be afraid to ask about fees. Specifically, consider asking whether a consultant, especially the legal or accounting type, would be willing to work on some sort of flat-fee basis. You can always offer those consultants the long-term relationship in exchange for a lower rate or flat fee now.
Utilizing Inside Advisors
The most obvious set of team members for deal-makers is the
inside
team â that is to say, those employees who already work for the company. Working with inside advisors makes sense because they don't represent any additional dollar cost for the company. The company is already paying them, so it may as well use them!
However, utilizing inside advisors means a company incurs another kind of cost: opportunity cost. Having an employee devote all or some of her time to selling the company or finding acquisitions means you're taking that person away from the regular business of the company. In the following sections, I highlight some of the main inside-team members.
CFO or other financial bigwig
The CFO or other key finance person at a company is usually an integral part of the M&A process. For Seller, that person is responsible for assembling, preparing, and presenting the company's financials and explaining, justifying, and examining any
add backs
(nonrecurring, one-time, or owner-related expenses). For Buyer, she's also the person who interacts with the bank, lines up the financing, makes sure money is wired or received, and runs financial models to make sure a given offering price makes economic sense for the company.
Corporate development people
Some companies (often those that do a lot of acquiring) have employees specifically tasked with engaging in M&A. These folks usually have the phrase
corporate development
in their titles, such as
Director of Corporate Development, Corporate Development Manager,
or even
Vice President of Corporate Development.
That's a big one.
Whatever that person's title, I'll just call her the Corporate Development Dude. (The title
Dude
has no gender in M&A.) The Dude is the liaison between the company and the target or the target's outside advisors (see the following section).
Do you need an in-house lawyer?
Sound legal advice is vital in deal-making regardless of which side you're on. A deal attorney negotiates the legal aspect of the deal, including representations and warranties, amount of money held back in escrow, employment agreement, non-solicitation agreements, and all sorts of other important legalese. Whether a company needs an in-house attorney to handle these functions or whether it should hire outside counsel is usually a function of the size of the company. In other words, if you don't already have an in-house attorney, you probably don't need to hire one just to conduct M&A deals.
Remember:
Much like buying a private jet, if you need to ask about the cost of hiring an in-house attorney, your company probably can't afford it. Retaining a capable attorney for certain discrete tasks is a better use of your company's resources.
Hiring Outside Advisors
Having someone to look at a situation from a distance, to be able to consider that situation from a perspective of a detached outsider, can often be the greatest benefit to a person who is buried in the minutiae of day-to-day operations and worries. In other words, an outsider just may be the help an M&A deal-maker needs to successfully complete deals.
Both Buyer and Seller need the following advisors:
An attorney to draft (or edit/revise) the purchase agreement (assuming you don't have an in-house lawyer qualified to do so; see the sidebar “Do you need an in-house lawyer?” for more)
Accountants to audit or review the numbers and more importantly, to interact with the other side's accountants
Advisors to negotiate the deal and to make sure it gets across the finish line. These folks are usually called investment bankers.
And depending on the complexity of the deal and other factors, Buyer may also need marketing, environmental, and perhaps IT/database consultants.
Here are some other considerations to keep in mind when hiring outside advisors:
Don't be afraid to manage your outside advisors and hold them accountable.
At the same time, let them do what you hired them for. They're deal experts.