5 Critical Mistakes to Avoid in Any M&A Deal
By Procopio Partner Paul B. Johnson, Co-Leader of its Mergers & Acquisitions and Strategic Joint Ventures Practice
Having worked on hundreds of merger and acquisition deals over the last few decades, I’ve found two things to be true: 1) Each deal is unique in its own way; 2) There are a few mistakes CEOs often make that complicate deals and harm their own self-interest.
Allow me to outline five actions CEOs approaching a merger, acquisition, sale or joint venture should take to avoid those mistakes:
1. Tread lightly. The reason many companies are positioned to be acquired or bring on a strategic partner is because of a CEO’s aggressiveness. You may recognize yourself in this description. Your take-charge attitude secured market share and generated venture capital and growing revenues, and now your company is hot. But it rarely pays to bully your way through an M&A negotiation. The person on the other side of the table is likely just as savvy as you, and might be more experienced at closing deals. If you have leverage, it’s fine to use it, but be careful not to burn bridges in the process. Karma is real.
2. Understand what they want and their bargaining position. You should learn before you sit down at that table how experienced the other side is at deals like yours. You should also have knowledge of the decision it has made in past deals, from price decisions to preferred type of transaction. And, perhaps most importantly, you should know why doing a deal with you is important to them and their company. What is at stake? How will a go/no-go decision impact their company’s bottom line or future prospects? Knowledge is leverage.
3. Hire the right advisors. Maybe you’ve come to rely so closely on your trust and estates lawyer over the years that you consider him or her a friend. But if you’re now looking to sell your company, you want an expert in M&A transactions. If you have outside directors, they may be full of advice, but it will be driven by their own experiences, which may or may not be applicable to you. Your accountants and bankers will have insights to offer, but they can’t be expected to see the full picture. Bring in experts in the type of deal you want to execute.
4. Listen to those experts. Not acting on a simple piece of advice early can be highly expensive later. If you’re told to perform some tax planning ahead of company sale discussions, by all means follow that advice. You might otherwise find yourself out millions of dollars come closing date. I’ve seen it too many times. You’ve hired someone with experience—make use of that experience.
5. Remain the decision-maker. You’ve brought in the experts, and you’re listening to their counsel. But you need to remain in charge. Don’t just hand over management of the process to those advisors and turn your attention to activities with which you’re more familiar, but at the same time keep your focus on your company as if no deal is going to happen. Your advisors can only serve you if you clearly articulate up front what your goals and intentions are, and if you stay engaged as the process unfolds to make those key decisions impacting those goals and intentions.
When done properly, a successful M&A transaction can be one of the highlights of your career. It is a satisfying conclusion to an entrepreneurial endeavor you undertook at some risk and usually significant cost. When done poorly, it will hit your pocketbook and leave you less well positioned for your next venture. Following this guidance should increase your odds of success when that next opportunity arises.
Paul B. Johnson is a Partner at Procopio and Co-Leader of its Mergers & Acquisitions and Strategic Joint Ventures Practice Group. He helps entrepreneurs and their investors get companies formed, funded and sold, including initial formation of corporations and LLCs, negotiation of seed, early and mid-stage equity financings and buy and sell-side mergers and acquisitions. He is also adept at venture capital investments, public and private securities offering and compliance and general business counseling.