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Transaction Services

In an environment in which transactions are becoming more and more complex, companies are relying on strategic and financial business advisors with credentialed expertise to manage and/or assist in the transaction process.


November 11, 2019


During my career as a tax and business advisor to privately held businesses, I have worked on over 350 M&A transactions. But behind these transactions are many M&A processes that did not close as a result of an unprepared business owner. Based on my experience, M&A needs to be a strategy that is considered even when there is no imminent or pending transaction.

Business owners should consider M&A as an integrated part of their business strategy because even if they do not plan on any transactions, there will often be a moment when it is at least a consideration, and there will be significant challenges in starting from scratch.

This long-term planning strategy is critical because once the M&A process is initiated, it can be difficult and expensive to backtrack; and more importantly the basis for the company’s offer could change or be withdrawn entirely. It is thus critical to have a plan in place.

When business owners start to think about M&A strategies, they often develop a mindset that enables them to consider expansion opportunities that are not already available as resources within their business. For example, some companies may have a large and expanding customer base, but not the right talent or manufacturing facilities. Finding a complementary partner - whether it is a sales force (talent) or manufacturing facilities is thus part of the due diligence process. This strategy holds regardless of whether it is a buy or sell transaction.

Lack of planning will be detrimental

As an example of a lack of M&A planning, we had advised a business owner who is well-respected in his field and built a business that currently has several Fortune 100 clients on its client roster. But while looking at his business, it was difficult to determine his business segments and where he was most profitable, to support his valuation. This business owner was approached by a Strategic, but the negotiations turned sour and eventually the potential for a deal was taken off the table. But the business owner was now keen on selling, given that he was looking to retire. The client did not perform the necessary leg work to be able to sell to another entity, such as having control and support over the financial information and data to support the recurring revenue from his customers to support the selling price. In this case the owner wanted to exit his business but by only focusing on one interested buyer, he didn’t set himself up for success given that he did not entertain competing offers and incorporate any potential business improvements based on the feedback that often accompanies M&A-related interactions.

Business disruption can occur when you are not prepared

Another example, we were working with a company in the pharmaceutical space that signed a letter of intent, but they lacked preparation. One significant area was in revenue recognition - which contained incorrect numbers which had a substantial impact on the EBITDA that was represented. In addition, during the selling and due diligence process the owners - implementing the process at the last minute - were extremely distracted. They had to drop all of their executive duties to focus on the M&A discussion and thus unable to focus on their customer base. Proper planning and preparation would have prevented this deal from failing, costing money and draining resources.

The process of considering M&A forces business owners to evaluate their future as opposed to only considering present needs such as minimizing taxes and current revenue streams. It is imperative that business owners thus formulate an M&A plan so they are not left scrambling when an offer is made. This planning also helps to ensure the long-term success of their business by conducting the necessary due diligence that could highlight potential new resources, reveal weaknesses and provide a window into long-term growth prospects.

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