Mergers and Acquisitions For Dummies E-Book

William R. Snow

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 530

Veröffentlichungsjahr: 2011

Beschreibung

The easy way to make smart business transactions Are you a business owner, investor, venture capitalist, or member of a private equity firm looking to grow your business by getting involved in a merger with, or acquisition of, another company? Are you looking for a plain-English guide to how mergers and acquisitions can affect your investments? Look no further. Mergers & Acquisitions For Dummies explains the entire process step by step?from the different types of transactions and structures to raising funds and partnering. Plus, you'll get expert advice on identifying targets, business valuation, doing due diligence, closing the purchase agreement, and integrating new employees and new ways of doing business. * Step-by-step techniques and real-world advice for making successful mergers and acquisitions * Covers international laws and regulations * How to take advantage of high-value deals Going beyond the case studies of other books, Mergers & Acquisitions For Dummies is your one-stop reference for making business growth a success.

Leseprobe

Mergers & Acquisitions For Dummies®

Visit www.dummies.com/cheatsheet/mergersandacquisitions to view this book's cheat sheet.

Table of Contents

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Mergers & Acquisitions 101

Part II: Taking the First Steps to Buy or Sell a Company

Part III: Starting the Deal on the Right Foot

Part IV: Firming Up the Deal

Part V: Closing the Deal . . . and Beyond!

Part VI: The Part of Tens

Icons Used in This Book

Where to Go from Here

Part I: Mergers & Acquisitions 101

Chapter 1: The Building Blocks of Mergers and Acquisitions

Defining Mergers and Acquisitions

Introducing Important Terms and Phrases

Buyer

Seller

Transaction (also known as the deal)

Consideration

EBITDA

Adjusted EBITDA

Closing

Adhering to Basic M&A Rules and Decorum

Follow the steps to getting a deal done

Understand M&A etiquette

Know what to tell employees — and when

Considering the Costs Associated with M&A

Tallying advisors’ fees and other costs

Paying off debt

Post-closing adjustments

Sigh . . . talking taxes

Determining What Kind of Company You Have

Sole proprietorship

Small business

Middle market and lower middle market company

Large company (and beyond)

Chapter 2: Get ting Ready to Buy or Sell a Company

Considering Common Reasons to Sell

Retirement

Let someone else take the company to the next level

Divesting a division or product line

The industry is changing

I’ve got troubles, troubles, troubles

Selling a piece of the company

Planning Ahead to Ensure a Smooth Sale

Clean up the balance sheet

Pay off debt

Address legal issues

Trim staff and cut dead weight

Increase sales

Quantify owner’s expenses and other add backs

Owner, make thyself expendable

Exploring Typical Reasons to Acquire

Make more money

Gain access to new products and new markets

Implement vertical integration

Take advantage of economies of scale

Buy out a competitor

Prepping before an Acquisition

Determine the appropriate type of acquisition

Get your company’s balance sheet in order

Have the money lined up

Set up an acquisition chain of command

Buying a Company from a PE Firm

Understanding why PE firms sell

Evaluating a PE firm’s portfolio company

Chapter 3: Previewing the Generally Accepted M&A Process

Take Note! The M&A Process in a Nutshell

Step 1: Compile a target list

Step 2: Make contact with the targets

Step 3: Send or receive a teaser or executive summary

Step 4: Execute a confidentiality agreement

Step 5: Send or review the confidential information memorandum

Step 6: Solicit or submit an indication of interest

Step 7: Conduct management meetings

Step 8: Write or review the letter of intent

Step 9: Perform due diligence

Step 10: Draft the purchase agreement

Step 11: Show up for closing

Step 12: Deal with post-closing adjustments and integration

Exploring Two Types of M&A Processes: Auction versus Negotiation

Who Has It Easier, Buyer or Seller?

Selling is easy if you know what you’re doing

Buying is difficult even if you know what you’re doing

Following the Power Shifts in the M&A Process

Looking at the factors of motivation

Understanding who has power

Reading the other party’s situation

Maintaining as much power as possible when disclosing undesirable news

What to Tell Employees and When

Keep news of a sale process confidential

Never lie

A staggered release

Part II: Taking the First Steps to Buy or Sell a Company

Chapter 4: Financing M&A Deals

Exploring Financing Options

Buyer uses his own cash

Buyer borrows money

Buyer utilizes Other People’s Money

Buyer seeks financial help from the Seller

Understanding the Levels of Debt

Surveying senior lenders and subordinated debt

Looking at lines of credit

Taking a Closer Look at Investors

Institutions versus individuals

Private equity (PE) firm

Strategic Buyer

Striking the Right Type of Deal

Exploring the differences among buyouts and majority and minority investments

Choosing an asset or a stock deal: What’s Buyer buying?

Examining the All-Important EBITDA

Making Buyers’ Return Calculations

Return on equity

Return on investment

Internal rate of return

Financing a Problem Child

Debt is greater than purchase price

The business has operating losses

Chapter 5: With a Little Help from Your Friends: Working with M&A Advisors

Choosing Wisely: Identifying Ideal Advisors

Utilizing Inside Advisors

CFO or other financial bigwig

Corporate development people

Hiring Outside Advisors

Consulting wealth advisors when you’re ready to sell

Considering an intermediary

Lawyering up on both sides

Looking at accountants and auditors for Buyers and Sellers

I’m the tax man!

Recruiting more consultants to Buyer’s team

Seeking friendly advice: Using friends and family as informal advisors

Skipping business appraisers

Keeping Everyone on the Same Page: Avoiding Communication Breakdowns

Getting Your Banker Involved

Chapter 6: Finding and Contacting Buyers or Sellers

Creating a Target List

Getting started

Expanding and winnowing the list

Capping the list: How many (and which) companies to include

Sellers on Your Mark: Contacting Buyers

Speaking with the right person

Following a script that works

Easy Does It: Contacting Sellers

Getting the call off on the right foot

Using a successful script

You’re having a serious conversation! What now?

Additional Tips for Getting Past Screeners

Recognizing who you’re dealing with

Overcoming screener roadblocks

Tracking Your Calls

Part III: Starting the Deal on the Right Foot

Chapter 7: Assuring Confidentiality

Tempting Buyers with an Anonymous Teaser

Keeping it short and sweet

Including high-level financial info only

Touting key selling points

Executing a Confidentiality Agreement

Perusing the CA’s contents

Figuring out which party sends the CA

Determining who gets more value out of the CA

Handling a Breach of Confidentiality

Confirming a breach

Thinking long and hard about legal action

Keeping the Cat in the Bag: Advice for Buyers

Involving employees and advisors

Discussing the deal in public

Chapter 8: Creating and Reviewing an Offering Document

The Offering Document in a Nutshell

Compiling the Executive Summary

The thesis

Seller’s rationale for seeking a deal

Seller’s deal guidance

Presenting the Company’s Background

The company’s past and present

Ownership and legal entity

Employee info and benefits

Locations of offices and facilities

Real estate

Technology

Legal disclosures

Sharing the Go-to-Market Strategy

Description of market and products

Customer names

Info about competitors

Doing the Numbers

Historical financials

Financial projections

Balance sheet basics

Income statement basics

Losses on the books

Accounts receivable terms

Fixed assets (equipment)

Inventory

Intangible assets

Chapter 9: Properly Expressing Interest in Doing a Deal

Understanding the Indication of Interest

Including Key Bits of Information in an Indication of Interest

Preamble, platitudes, and Buyer background

The proposed deal: Valuation range and other considerations

The legalese

An enthusiastic send off

Chapter 10: Ensuring Successful First Meetings between Buyer and Seller

Understanding the Importance of Meeting in Person

The buyer gets to interact with key management

Both sides perform due diligence on the other

The parties gauge chemistry

Ironing Out Management Meeting Logistics

Assembling key players

Agreeing on a venue

Setting the meeting agenda

Perfecting the Seller’s Presentation

Gathering the right material

Making Seller’s presentation shine

Prepping Buyers for Management Meetings

Reading the Tea Leaves: Did the Meeting Go Well?

Part IV: Firming Up the Deal

Chapter 11: An Insider’s Guide to M&A Negotiating

Keys to Negotiating Success

Know your position

Remember the goal: Closing a deal

Negotiate with the decision-maker

Bend where you can

Take it one day at a time

Remember your ABNs: Always be negotiating

Using Successful Negotiating Tactics

Say “Here’s the deal that gets it done”

Pick up the phone

Offer a conditional if-then agreement

Understand that the first who speaks loses

Don’t be afraid to haggle

Beware of a bad bluff

Avoiding Common M&A Negotiating Mistakes

Surviving Unforeseen Twists and Turns

Getting a deal gone sideways back on track

Negotiating in good faith

Chapter 12: Crunching the Numbers: Establishing Valuation and Selling Price

What’s a Company Worth? Determining Valuation

Meeting in the Middle: Agreeing on a Price

Testing the waters

Buyers: Measure returns

Sellers: Create a compelling valuation

When Buyer and Seller Disagree: Bridging a Valuation Gap

Using an earn-out to prove valuation

Settling a valuation disagreement with a Seller note

Paying for a company with stock

Selling less than 100 percent of the company

Dealing with Renegotiation

Chapter 13: LOI and Behold: Making or Receiving an Offer

Signaling Sincerity with a Letter of Intent

Understanding the Salient Issues in the LOI

Salutation and preamble

Valuation and deal structure

Holdback and escrow

Representations and warranties

Financing

Due diligence and timing

Approvals and conditions

Role of management

Access to information

Expenses

Exclusivity

Non-disclosure and publicity

Nonbinding agreement

Governing law or jurisdiction

Agreeing to and Extending Exclusivity

Considering exclusivity in pre-emptive bids

Running out of time: Prolonging exclusivity

You Have a Signed LOI — Now What?

Chapter 14: Confirming Everything! Doing Due Diligence

Digging into the Due Diligence Process

Getting the process underway

Allowing enough time for the due diligence phase

Covering the expense

Conveying the due diligence info to Buyer

Business as usual: Running the company during due diligence

Providing Appropriate Information

Corporate info

Operations

Financials

Sales and marketing info

Real estate and facilities info

Fixed assets

Inventory

Supplier info

Intellectual property

Human resources

Debt and financial dealings

Environmental concerns

Taxes

Contract information

Insurance

Litigation history

Governmental filings

Considering Requests for Additional Information

Chapter 15: Documenting the Final Deal: The Purchase Agreement

Drafting the Deal

Writing the first draft

Redlining the initial draft

Navigating the Final Purchase Agreement

Confirm the name, rank, and serial number of the deal

Determine what’s being sold, for how much, and when

Know what to bring to the closing

Review the representations and warranties

Secure against loss with indemnifications

Agree on how to handle a rep and warranty breach

Get acquainted with the exhibits and schedules

Part V: Closing the Deal . . . and Beyond!

Chapter 16: Knowing What to Expect on Closing Day

Gathering the Necessary Parties

Walking Through the Closing Process

Reviewing the flow of funds statement

Signing the final purchase agreement and other documents

Distributing the funds: Show me the money!

Popping the champagne

Tying Up Loose Ends Shortly after Closing

Allowing time to fully close the books

Making a working capital adjustment

Chapter 17: Handling Post-Closing Announcements and Adjustments

Start Spreading the News

Telling Seller’s employees about the deal

Making a media announcement

Following Through: The Deal after the Deal

Closing the loop on post-closing adjustments

Wrapping up the contingent payments

Dealing with Disputes

Handling breaches

Making claims against escrow

Chapter 18: Come Together: Integrating Buyer and Seller

Planning the Integration

Assembling a Buyer’s transition team

Determining the level of autonomy

Covering the carve-out bases

Communicating with Seller before the close

Transition process: Planning the first 90 days

Culling Products and Services

Combining Operations, Administration, and Finance

Handling Personnel: Successful First Steps for New Owners

Addressing cultural differences

Resolving conflict

Acting like a leader at all times

Making friends

Instituting accountability

Firing people

Part VI: The Part of Tens

Chapter 19: Ten Considerations Prior to Signing an LOI

Is the Deal Too Good to Be True?

How Is the Buyer Financing the Deal?

How Much Cash Is in the Offer?

What Are the Conditions of Escrow?

Is the Deal a Stock or Asset Deal?

How Does the Deal Settle Working Capital Issues Post-Closing?

Is the Inventory 100 Percent Salable?

Who Pays Off Any Long-Term Debt and What Happens to the Line of Credit?

What Are the Tax Implications of the Seller’s Accounts Receivable?

Is the Seller Signing a Noncompete Agreement with the Buyer?

Chapter 20: Ten Major M&A Errors and How to Avoid Them

Assuming the Deal Is Done after the LOI Stage

Being Unprepared for Due Diligence

Asking for a High Valuation with No Rationale

Figuring Buyers Won’t Discover Problems in the Financials

Underestimating the Other Side’s Sophistication

Failing to Understand Who Really Has the Power

Withholding Material Information

Blabbing about the Deal Before It Closes

Calling the Seller’s Employeeswithout Permission

Contacting a Seller’s Customers or Vendors without Authorization

Chapter 21: Ten Possible Ways to Solve Valuation Differences

Payments over Time

Earn-Out Based on Revenues

Earn-Out Based on Earnings

Earn-Out Based on Gross Profit

Valuation Based on a Future Year

Partial Buyout

Stock and Stock Options

Consulting Contract

Stay Bonus

Combo Package

Appendix

Groups, associations, and networking organizations

Virtual data rooms

Periodicals

Advisors

Regulatory agencies

Online business references

Financial Buyer Indication of Interest

Strategic Buyer Indication of Interest

Corporate information

Operations

Financials

Sales and marketing info and documents

Real estate and facilities

Fixed assets

Inventory and costing

Purchasing and suppliers

Intellectual property

Human resources

Debt and financings

Environmental

Taxes

Contracts

Insurance and risk management

Litigation and contingent claims

Governmental filings and reporting

Cheat Sheet

End User License Agreement

Mergers & Acquisitions For Dummies®

by Bill Snow

Mergers & Acquisitions For Dummies®

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2011 by Wiley Publishing, Inc., Indianapolis, Indiana

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2011926316

ISBN: 978-0-470-38556-2

Manufactured in the United States of America

10 9 8 7 6 5 4 3 2 1

About the Author

Bill Snow is an experienced M&A professional. He advises business owners in the sale of their companies or the acquisition of other companies. He’s the one who contacts the buyers and sellers, negotiates and structures deals, oversees the due diligence, works with the attorneys to draft the purchase agreement, and ultimately gets the deal across the finish line.

Companies that Bill has advised include (but aren’t limited to) businesses in marketing services, food processing equipment, drink dispensing equipment, guarding, cleaning, staffing, distribution, data marketing, wastewater services, telecommunications, and systems integrators.

Bill has written articles for numerous online sources and self-published a book about venture capital called Venture Capital 101. He has been involved with World Business Chicago, the Chicagoland Chamber of Commerce, the Chicagoland Entrepreneurial Center, the Technology Executive’s Club, the Midwest Entrepreneur’s Forum, and DePaul University’s PEN Symposium. He also hosts occasional networking events.

He has an MBA and a BS in finance, both from DePaul University, and he’s a registered limited representative (FINRA series 63 and 79). You can find out more about Bill at his Web site, www.billsnow.com.

Dedication

To business owners and executives who are thinking about buying or selling a company.

Author’s Acknowledgments

The genesis of this book goes back to my humble little attempt at some creative writing. Little did the subjects of those silly newsletters know that I had ulterior motives for documenting (and, uh, embellishing) those crazy years in our 20s. Sure, our little newsletter contained some funny bits, but truth to tell, I was writing it to hone my technical writing skills and to foster my creative abilities. Seriously. And you thought it was all about you!

So a big thank you to a cast of characters that include Ebbitt and that fine woman Clare, Little Lisa, Big Steve, Stevie V, Johnny V, Mariola, Jason S, Jason T, Joe, Carrie, Rogie, Rainbow, Jen, Tony, the Dold Boys and everyone at the Dold Family Compound, the brood of ungrateful Kemps (Tim, Kelly, Kerry, Karla, and Loren), and the unknowing and unwitting, creative-juice-generating granddaddy of ’em all . . . our Romanian pal Mark. I am grateful for your youthful antics, and more important, I am grateful for your continued friendship. Well, those of you who still speak to me.

A huge thanks to my mother and father, Carol and Bill Snow. I will never be able to repay you both for all that you have done for me over the years. When I find a T-shirt that reads, “We gave our kids everything and all we got was a lousy mention in a book,” I’ll send one to each of you. And to my sister, Laura, the first in the family to get a PhD. You made it so much easier for me to pursue this book venture: Now I can be the first in the family with a published book. You also said I was a perfect choice to write a For Dummies book, “’cause they’re snarky.” Though I’ll have you know, Ms. PhD smarty-pants, that For Dummies books are actually irreverent.

I’d like to thank Bob Kinsella, Bob Stutz, Louis Krzys, and Chuck Weikel from Kinsella Group, Inc., for their extremely valuable input about deal-making. I also owe a debt of gratitude to Justin Kaplan of BNY-Melon; Mark Powers of Mark Powers, PC; Keith Berk of Horwood Marcus & Berk; and Brian Krob of Ungaretti & Harris for their insights about M&A transactions.

I am greatly appreciative to Wiley Publishing for backing me in this attempt at being a “wise old sage” for others. I am thankful that my little treatise on venture capital somehow found its way to Michael Lewis’s desk at Wiley in New Jersey. Thank you for getting the green light, and thank you, Internet; without you I never would have gotten the chance to write this book. And to my project editor, Alissa Schwipps, thank you for your sage advice and assistance. I was listening!

Lastly, to my long-lost dog park friend . . . safe travels.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax [phone].

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Senior Project Editor: Alissa Schwipps

Acquisitions Editor: Michael Lewis

Copy Editor: Megan Knoll

Assistant Editor: David Lutton

Technical Editor: Joelle Marquis

Senior Editorial Manager: Jennifer Ehrlich

Editorial Assistant: Rachelle Amick

Cover Photo: © Getty Images/Rick Elkins

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

Project Coordinator: Sheree Montgomery

Layout and Graphics: Joyce Haughey, Corrie Socolovitch

Proofreaders: Melissa Cossell, Melissa D. Buddendeck

Indexer: BIM Indexing & Proofreading Services

Special Help: Todd Lothery

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies

Ensley Eikenburg, Associate Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Debbie Stailey, Director of Composition Services

Introduction

In every job — whether it be sales, managing retail establishments, raising capital, crunching numbers, writing, working with venture capitalists, creating online ventures, or working investment banking deals (I’ve done all these, by the way) — you quickly discover that you need a whole new set of rules, lingo, conventions, and nomenclature. And more often than not, what you need to know to excel at your job can be distilled into just a few salient points. If you’re lucky, you bump into a wise old sage who, upon experiencing your questioning, utterly confused face, and dispirited body language, simply says, “Forget all that other stuff; here’s what you really need to know.” Enter Mergers & Acquisitions For Dummies, an inside look at the process of buying and selling companies.

Although companies change hands every day, buying and selling can mean many things and take many forms. Who or what is the Buyer or Seller? What kind of transaction is it? How will the Buyer finance the deal, and what does the Seller receive? These are only a few of the considerations in any given mergers and acquisitions (M&A) deal. It’s so confusing!

As a result, business owners, some of the main participants in M&A, are often completely befuddled when the time comes to sell their businesses or make acquisitions. They don’t know anything about M&A because they’ve been focused on their own businesses and not on the business of buying and selling companies.