I recently attended a CMC-ON-GTA Chapter Governance Special Interest Group, which focused on mergers & acquisitions (M&A) and special situations. The Chapter invited corporate and securities lawyers, Kevin West and Andrea Hill to share their insights and experiences with M&A.
First, for those who are less familiar with M&As, here is a skeleton of a typical friendly transaction:
1) Initial discussions and non-disclosure agreement
2) Letter of intent
3) Due diligence
4) Negotiation of definitive transaction documents (Share purchase agreement, etc.)
7) Post-closing integration
Kevin and Andrea's presentation was targeted to consultants and advisors who work with boards. Here are some key insights from the session Q & A:
Q: How can we as consultants do a better job of bringing M&A considerations into strategic planning so that M&A is seen as a tool of strategy implementation?
A: Exit strategies might not always be on the horizon. No one size fits all. That said, it is always good for a public company to keep M&As in mind, just in case they receive an unexpected offer. One problem that often crops up is that many companies get into the selling process because they don’t want to be sued for ignoring a decent offer. These companies sell too early and typically don’t value their company high enough. Another problem is that the CEO or founder’s vision did not include a sale scenario, so in these cases, the company can face uncertainty and be ill-prepared if their CEO/founder suddenly becomes severely ill or passes away.
Q: The due diligence process is often challenging. Is there a better way to manage the process?
A: There are several things that might improve the process. For starters, good record keeping leads to easier due diligence. As an example, Sky Law uses cloud computing, which works well for them. Be prepared to double check to “get comfortable” with what the other side has said. Furthermore, clearly understanding the goals of the client allows the law firm to focus their due diligence and ensure their work meets expectations. One should consider securing an independent, third-party firm to provide a quality earnings report to assess the sustainability and accuracy of historical earnings, as well as the achievability of future projections.
And here are some takeaways on the M&A process that you may find helpful:
- Observing that almost every M&A situation in the U.S. results in a suit against the board of the company being acquired, it is good practice to:
- ensure liability insurance is in place
- consider securing independent advisors
- know who your shareholders and the key players in the transaction are
- prepare for board meetings involving special situations.
- Consult a lawyer as early in the M&A process as possible
- Familiarize yourself with all board regulations and shareholder agreements as several things can go awry
This session provided lay people with an understanding of basic M&A structure while simultaneously offering the more experienced professionals with insights regarding their specific queries.
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