As the seller of a business in an M&A (mergers and acquisitions) transaction, it is important to ensure that all stages of the process are taken care of, including early preparations to deal completion and beyond. In order to successfully navigate the sale of your business, it is essential to understand what is required during an M&A transaction, and how to mitigate any risk or complication throughout the process.
To help understand the selling process, we explore the M&A transaction experience from the perspective of a seller in order to provide advice and guidance on successfully completing a deal.
Preparing to Sell
· A company’s financial statements
Before starting the M&A transaction process the seller must prepare their business to sell. This means ensuring your company’s financial statements are in order. This will not only streamline the M&A transaction process, but it will generate confidence in your buyer and could help with the valuations in later stages.
· Preparing your M&A transactional team
Ensuring you have the correct team of people to carry out the merger is vital. Without a team that you can trust, it could cause complications to the transaction in the later stages of a deal. Often these teams include specialist roles from within, and outside of, your organisation, such as:
- CFO or Accountant
- M&A Broker (specialising in the sell-side)
- M&A Attorney
- Tax & Wealth Manager
Having these specialists managing your M&A transaction can help mitigate complications within the process.
Due to the current economic climate, business valuations can fluctuate dramatically. As a result, companies can request for a re-valuation during the merger and acquisition process. As the seller you will be required to provide substantial information to enlighten the acquirer of all aspects of your business, including current financial information such as profits, assets and debts. Valuation models will be used in the negotiations by the buyer to make an offer.
A crucial part of any M&A transaction is the negotiation. This is not, however, limited to one stage of the merger and acquisition process. Instead, negotiations are ongoing throughout the transaction and can impact the final deal.
· Letter of intent
During the early stages of a merger and acquisition transaction, a letter of intent will be submitted from a prospective buyer. Although not binding, this document along with a term sheet is one of the earliest opportunities for the seller to negotiate a deal.
Often sellers try to expedite this stage to proceed with the M&A process as quickly as possible, but this can give the seller a significant amount of negotiating power before a deal is completed.
· Offer negotiations
Once the buyer has put forward an offer, negotiations are vital to the rest of the transaction. As part of the process prior to the acceptance of an offer, the two companies are required to negotiate the terms of the offer in more detail.
M&A pre-transaction due diligence
This occurs once the offer is accepted. This stage is designed to protect the acquirer’s value assessment and requires an in-depth analysis of all aspects of the seller’s company, from finances, assets and liabilities to customers and HR. All areas are scrutinised as part of the M&A transaction process.
HR due diligence is important for both parties. For the seller, it is important to review the buyer’s current HR status to protect your employees. This assessment will highlight any potential risks likely to impact the M&A deal.
A seller’s responsiveness to questions and data requests can impact the buyer’s confidence during a transaction. This is where preparing your company before the M&A transaction process pays off. Quick and timely responses from the seller can build confidence in the transaction early on, whereas delays can compromise a deal.
Purchase & sale contract
After the due diligence is completed and any identified problems are resolved as part of further negotiations, the process can proceed to the purchase and sales contract. Here, the type of transaction is agreed – whether it is an asset purchase, stock purchase or even a merger. This will be the final contract of the sale and all final decisions must be agreed upon.
Key considerations for HR
As well as the early due diligence, there are several HR considerations, some of which our global HR consultants can help with, that need to be factored into your merger and acquisition transaction
Preparing staff for transfers
Moving staff during an M&A can seem difficult. Depending on where your M&A business is situated may determine TUPE (transfer of undertakings), which is required in many European countries. As part of preparing staff for a transfer you must consider:
- Employment contracts
- Past or pending litigations
- Immigration considerations of transferring employees
- Consultation processes, where appropriate
- Entity, employment and organisational structures
Communication of the transfer is important and a planned strategy for all employees should be mapped and prepared.
Other HR considerations for M&A transactions
Other HR roles will be key throughout the M&A transaction process. However, these will be led by the acquisition party:
- Defining a cohesive culture
After a deal completes, a business will have to blend two different work cultures. This will involve creating a new vision and culture, which incorporates elements from the two businesses.
- Prepare for Reduction in Force (RIF)
When acquiring a business, the organisational structure of the previous company may not align so conveniently with your existing operation. This can often mean there is surplus or unprofitable resource that may need managing. The HR processes surrounding your preparation for reduction in force is essential to stay compliant.
M&A support services
At IRIS HR Consulting, our team of merger and acquisition experts can assist you throughout selling your business. We help organizations harmonize and drive their people priorities during transactions, such as global mergers and acquisitions, carve-outs, divestitures, spin-offs, and IPOs.
IRIS HR Consulting will make the transaction seamless by advising on ,or indeed carrying out, all the necessary HR processes through our M&A support services.
For more information on how IRIS HR Consulting can support your M&A, contact us today.