IF AN ACQUISITION IS YOUR EXIT STRATEGY, THE TIME TO PREPARE IS NOW

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M&A ACTIVITY IS AGAIN ON THE RISE.  COMPANIES THAT USED THE RECESSION TO TRIM THE FAT FROM THEIR P&L AND ACCUMULATE CASH ON THEIR BALANCE SHEET ARE NOW LOOKING TO USE THAT CASH FOR STRATEGIC ACQUISITIONS THAT INCREASE THEIR MARKET SHARE AND PRODUCT/SERVICE OFFERINGS AS THE BUSINESS CLIMATE BEGINS TO IMPROVE.

According to a joint project by Thomson Reuters and Freeman Consulting Services that included interviews with 150 executives from a broad swath of industries, global merger and acquisition activity is on track to rise 36 percent, to $3.04 trillion in 2011, the highest amount since 2007.

For most emerging companies, an acquisition is a much more likely exit strategy and liquidity event than an initial public offering (IPO).  Unfortunately, most companies that see an acquisition as a possibility do very little to plan for that event.  The result is often a reactive response to an acquisition offer that is less than what the company and its shareholders could have attained if they had proactively planned for such an event as part of their overall strategy.

One of the services we offer at Free Vector Advisors is pre-acquisition planning.  A typical engagement might include:

  • Extensive due diligence using a due diligence checklist similar to what the company would receive from a potential buyer after a letter of intent has been signed.  This allows the company to identify and address potential problems that might lead to a lower offer price, and to create a framework that can be used to keep the company’s books and records organized in a way that will simplify a later due diligence request.

  • Preparation of a business plan and financial model that specifically contemplates an acquisition as a potential exit strategy, including the identification, targeting and tracking of potential buyers.

  • An initial valuation of the company and a valuation model that can be easily updated and modified as strategic milestones and objectives are reached, and which can be used to evaluate an acquisition offer.

  • Ongoing mentoring and support to update and achieve the objectives set forth in the strategic plan, including interim management services, if and as required.

Identifying and planning for an acquisition up front as part of a business strategy allows a company to evaluate an offer against  predefined expectations, with less risk of unwelcome surprises through the due diligence process.  It also allow the company to proactively solicit potential buyers, hopefully resulting in competing offers and a higher purchase price.

Perhaps the best benefit for preparing for an acquisition in advance is that it allows the company to evaluate an offer on their own terms.  By taking the steps to make the company an attractive acquisition candidate, the company has almost certainly taken the steps necessary to show that it has a strong management team, business strategy and ability to execute, regardless of whether or when a potential buyer comes calling.

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On January 11, 2012
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