Buying another business can be an exciting perspective. For many entrepreneurs, it is a Chans to grow rapidly, expand to new areas and take its business to the next level. But while it is tempting to jump directly when an opportunity occurs, it is important to address the activity of mergers and acquisitions with a clear head.
Over the years, I have seen many offers that house to plan, not because the business fit well, but because the correct steps are hiding the tasks from the beginning. An area that is often underestimated is the cost of moving away from an agreement, especially is made at the wrong point of the process.
Do not incorporate costs too early
Starting with the basics, any agreement involved in buying shares in a company will imply a certain level of legal contributions. You will need a lawyer to write and review documents, and give tips on things such as wars and compensation. That entry is essential, but it has a cost.
I have often seen business owners who bring a lawyer on board immediately, who starts the clock in legal fees, or before they have a clear vision of what they are really buying. Even for narrower offers, it is a good idea to bring a fiscal accountant and fiscal advisor with experience in mergers and acquisitions from the beginning. They can carry out due diligence and help mark any risk or problem that may affect the value or future performance of the business.
Yes, this means additional costs, but it is about weighing the cost of doing that work compared to the risk of not doing so. For example, I have seen cases in which a buyer did not see that an objective company had incorrectly filling VAT returns in years. HMRC launched a consultation after the agreement was made, and the new owners ended with a large VAT bill that could have been guessing with adequate diligence. That son of things can easily catch people.
Agree the First Commercial Terms
Another error that I see quite regularly is that people involve advisors and begin the diligence process before they have agreed to the key commercial terms of the agreement. If those terms do not nail in a document of heads of terms, there is a risk that disputes arise later, at which time the legal and advisory rates have already incurred in the leg.
It is frustrating to see agreements at a late stage because something that could be ordered with an early wax. Having clarity about things like the price, the payment structure and any key condition from the beginning helps to avoid that, and means that it is not spending money before the agreement is correctly agreed.
It is also worth noting that the ratio of rates with the activity of mergers and acquisitions is generally not deductible for fiscal purposes. Whether the agreement is completed or not, those costs are discussed as a capital nature, not commercial expenses. This means that he won the fiscal relief in them, even if the agreement falls.
Know when (and why) get away
Or of course, not all treatment will happen and that’s fine. Sometimes moving away is the right decision. But idically, that decision should be a result of something identified of due diligence, instead of a commercial disagreement that should have ordered the leg at the beginning.
If you have done the placement work and something that changes your vision of the treatment arises, it is much further away knowing that it was the right decision. On the other hand, withdraw at the end of the process due to a misunderstanding or avoidable misalignment only adds costs and frustration for all involved.
What to keep in mind
M&A can be a powerful way to grow their business, but only carefully addresses. Taking the time to clean the proper diligence, involve the appropriate advisors at the right time and agree on the key terms in advance can make a great difference in the way in which the process is executed.
Above all, try to maintain a level head. It is easy to get caught in the emotion of a possible treatment, but the best decisions come when you have all the facts in front of you. If the treatment is not correct, it is fine away. Just make sure it is for the right reasons, and not because something has been lost from the beginning.
Stef Fielding is fiscal director of the contracting and accounting firm, Sapphire.
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