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Mergers & Acquisitions For Dummies

Mergers & Acquisitions For Dummies

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9781119543862
  • Published In: August 2018
  • Format: Paperback , 368 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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  • Description 
  • Contents 
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  • Details

    Mergers & Acquisitions For Dummies (9781119543862) was previously published as Mergers & Acquisitions For Dummies (9780470385562). While this version features a new Dummies cover and design, the content is the same as the prior release and should not be considered a new or updated product.

     

    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.

  • Introduction 1

    About This Book 1

    Conventions Used in This Book 2

    What You’re Not to Read 3

    Foolish Assumptions 3

    How This Book Is Organized 4

    Part 1: Mergers & Acquisitions 101 4

    Part 2: Taking the First Steps to Buy or Sell a Company 4

    Part 3: Starting the Deal on the Right Foot 4

    Part 4: Firming Up the Deal 5

    Part 5: Closing the Deal and Beyond! 5

    Part 6: The Part of Tens 5

    Icons Used in This Book 6

    Where to Go from Here 6

    Part 1: Mergers & Acquisitions 101 9

    Chapter 1: The Building Blocks of Mergers and Acquisitions 11

    Defining Mergers and Acquisitions 11

    Introducing Important Terms and Phrases 12

    Buyer 13

    Seller 14

    Transaction (also known as the deal) 16

    Consideration 16

    EBITDA 16

    Adjusted EBITDA 17

    Closing 17

    Adhering to Basic M&A Rules and Decorum 18

    Follow the steps to getting a deal done 18

    Understand M&A etiquette 20

    Know what to tell employees — and when 20

    Considering the Costs Associated with M&A 21

    Tallying advisors’ fees and other costs 22

    Paying off debt 22

    Post-closing adjustments 22

    Sigh talking taxes 23

    Determining What Kind of Company You Have 23

    Sole proprietorship 24

    Small business 25

    Middle market and lower middle market company 25

    Large company (and beyond) 25

    Chapter 2: Getting Ready to Buy or Sell a Company 27

    Considering Common Reasons to Sell 28

    Retirement 28

    Let someone else take the company to the next level 29

    Divesting a division or product line 30

    The industry is changing 31

    I’ve got troubles, troubles, troubles 31

    Selling a piece of the company 33

    Planning Ahead to Ensure a Smooth Sale 35

    Clean up the balance sheet 36

    Pay off debt 37

    Address legal issues 38

    Trim staff and cut dead weight 38

    Increase sales 39

    Quantify owner’s expenses and other add backs 39

    Owner, make thyself expendable 40

    Exploring Typical Reasons to Acquire 41

    Make more money 41

    Gain access to new products and new markets 41

    Implement vertical integration 41

    Take advantage of economies of scale 42

    Buy out a competitor 42

    Prepping before an Acquisition 42

    Determine the appropriate type of acquisition 42

    Get your company’s balance sheet in order 42

    Have the money lined up 43

    Set up an acquisition chain of command 43

    Buying a Company from a PE Firm 43

    Understanding why PE firms sell 44

    Evaluating a PE firm’s portfolio company 44

    Chapter 3: Previewing the Generally Accepted M&A Process 45

    Take Note! The M&A Process in a Nutshell 46

    Step 1: Compile a target list 46

    Step 2: Make contact with the targets 46

    Step 3: Send or receive a teaser or executive summary 47

    Step 4: Execute a confidentiality agreement 47

    Step 5: Send or review the confidential information memorandum 47

    Step 6: Solicit or submit an indication of interest 48

    Step 7: Conduct management meetings 48

    Step 8: Write or review the letter of intent 48

    Step 9: Perform due diligence 49

    Step 10: Draft the purchase agreement 49

    Step 11: Show up for closing 49

    Step 12: Deal with post-closing adjustments and integration 49

    Exploring Two Types of M&A Processes: Auction versus Negotiation 50

    Who Has It Easier, Buyer or Seller? 51

    Selling is easy if you know what you’re doing 51

    Buying is difficult even if you know what you’re doing 52

    Following the Power Shifts in the M&A Process 53

    Looking at the factors of motivation 54

    Understanding who has power 55

    Reading the other party’s situation 56

    Maintaining as much power as possible when disclosing undesirable news 58

    What to Tell Employees and When 58

    Keep news of a sale process confidential 59

    Never lie 59

    A staggered release 59

    Part 2: Taking the First Steps to Buy or Sell a Company 61

    Chapter 4: Financing M&A Deals 63

    Exploring Financing Options 63

    Buyer uses his own cash 64

    Buyer borrows money 65

    Buyer utilizes Other People’s Money 65

    Buyer seeks financial help from the Seller 66

    Understanding the Levels of Debt 68

    Surveying senior lenders and subordinated debt 68

    Looking at lines of credit 68

    Taking a Closer Look at Investors 69

    Institutions versus individuals 69

    Private equity (PE) firm 71

    Strategic Buyer 73

    Striking the Right Type of Deal 74

    Exploring the differences among buyouts and majority and minority investments 74

    Choosing an asset or a stock deal: What’s Buyer buying? 75

    Examining the All-Important EBITDA 76

    Making Buyers’ Return Calculations 77

    Return on equity 77

    Return on investment 77

    Internal rate of return 78

    Financing a Problem Child 78

    Debt is greater than purchase price 78

    The business has operating losses 79

    Chapter 5: With a Little Help from Your Friends: Working with M&A Advisors 81

    Choosing Wisely: Identifying Ideal Advisors 81

    Utilizing Inside Advisors 83

    CFO or other financial bigwig 84

    Corporate development people 84

    Hiring Outside Advisors 84

    Consulting wealth advisors when you’re ready to sell 85

    Considering an intermediary 86

    Lawyering up on both sides 88

    Looking at accountants and auditors for Buyers and Sellers 89

    I’m the tax man! 89

    Recruiting more consultants to Buyer’s team 90

    Seeking friendly advice: Using friends and family as informal advisors 92

    Skipping business appraisers 92

    Keeping Everyone on the Same Page: Avoiding Communication Breakdowns 93

    Getting Your Banker Involved 95

    Chapter 6: Finding and Contacting Buyers or Sellers 97

    Creating a Target List 97

    Getting started 98

    Expanding and winnowing the list 99

    Capping the list: How many (and which) companies to include 101

    Sellers on Your Mark: Contacting Buyers 103

    Speaking with the right person 104

    Following a script that works 107

    Easy Does It: Contacting Sellers 110

    Getting the call off on the right foot 111

    Using a successful script 112

    You’re having a serious conversation! What now? 113

    Additional Tips for Getting Past Screeners 114

    Recognizing who you’re dealing with 114

    Overcoming screener roadblocks 115

    Tracking Your Calls 118

    Part 3: Starting the Deal on the Right Foot 121

    Chapter 7: Assuring Confidentiality 123

    Tempting Buyers with an Anonymous Teaser 123

    Keeping it short and sweet 124

    Including high-level financial info only 125

    Touting key selling points 125

    Executing a Confidentiality Agreement 126

    Perusing the CA’s contents 126

    Figuring out which party sends the CA 127

    Determining who gets more value out of the CA 127

    Handling a Breach of Confidentiality 128

    Confirming a breach 129

    Thinking long and hard about legal action 129

    Keeping the Cat in the Bag: Advice for Buyers 130

    Involving employees and advisors 130

    Discussing the deal in public 130

    Chapter 8: Creating and Reviewing an Offering Document 133

    The Offering Document in a Nutshell 133

    Compiling the Executive Summary 135

    The thesis 135

    Seller’s rationale for seeking a deal 140

    Seller’s deal guidance 140

    Presenting the Company’s Background 140

    The company’s past and present 141

    Ownership and legal entity 141

    Employee info and benefits 142

    Locations of offices and facilities 142

    Real estate 143

    Technology 143

    Legal disclosures 143

    Sharing the Go-to-Market Strategy 143

    Description of market and products 144

    Customer names 146

    Info about competitors 146

    Doing the Numbers 147

    Historical financials 147

    Financial projections 150

    Balance sheet basics 150

    Income statement basics 151

    Losses on the books 153

    Accounts receivable terms 153

    Fixed assets (equipment) 154

    Inventory 154

    Intangible assets 154

    Chapter 9: Properly Expressing Interest in Doing a Deal 157

    Understanding the Indication of Interest 158

    Including Key Bits of Information in an Indication of Interest 159

    Preamble, platitudes, and Buyer background 160

    The proposed deal: Valuation range and other considerations 160

    The legalese 163

    An enthusiastic send off 163

    Chapter 10: Ensuring Successful First Meetings between Buyer and Seller 165

    Understanding the Importance of Meeting in Person 166

    The buyer gets to interact with key management 166

    Both sides perform due diligence on the other 166

    The parties gauge chemistry 167

    Ironing Out Management Meeting Logistics 167

    Assembling key players 168

    Agreeing on a venue 168

    Setting the meeting agenda 169

    Perfecting the Seller’s Presentation 170

    Gathering the right material 171

    Making Seller’s presentation shine 171

    Prepping Buyers for Management Meetings 172

    Reading the Tea Leaves: Did the Meeting Go Well? 173

    Part 4: Firming up the Deal 175

    Chapter 11: An Insider’s Guide to M&A Negotiating 177

    Keys to Negotiating Success 177

    Know your position 178

    Remember the goal: Closing a deal 178

    Negotiate with the decision-maker 179

    Bend where you can 180

    Take it one day at a time 180

    Remember your ABNs: Always be negotiating 180

    Using Successful Negotiating Tactics 181

    Say “Here’s the deal that gets it done” 181

    Pick up the phone 181

    Offer a conditional if-then agreement 182

    Understand that the first who speaks loses 183

    Don’t be afraid to haggle 183

    Beware of a bad bluff 183

    Avoiding Common M&A Negotiating Mistakes 184

    Surviving Unforeseen Twists and Turns 186

    Getting a deal gone sideways back on track 187

    Negotiating in good faith 187

    Chapter 12: Crunching the Numbers: Establishing Valuation and Selling Price 189

    What’s a Company Worth? Determining Valuation 189

    Meeting in the Middle: Agreeing on a Price 192

    Testing the waters 192

    Buyers: Measure returns 193

    Sellers: Create a compelling valuation 194

    When Buyer and Seller Disagree: Bridging a Valuation Gap 196

    Using an earn-out to prove valuation 197

    Settling a valuation disagreement with a Seller note 197

    Paying for a company with stock 197

    Selling less than 100 percent of the company 200

    Dealing with Renegotiation 200

    Chapter 13: LOI and Behold: Making or Receiving an Offer 203

    Signaling Sincerity with a Letter of Intent 203

    Understanding the Salient Issues in the LOI 205

    Salutation and preamble 206

    Valuation and deal structure 206

    Holdback and escrow 207

    Representations and warranties 207

    Financing 208

    Due diligence and timing 209

    Approvals and conditions 209

    Role of management 209

    Access to information 209

    Expenses 210

    Exclusivity 210

    Non-disclosure and publicity 210

    Nonbinding agreement 211

    Governing law or jurisdiction 211

    Agreeing to and Extending Exclusivity 211

    Considering exclusivity in pre-emptive bids 211

    Running out of time: Prolonging exclusivity 212

    You Have a Signed LOI — Now What? 213

    Chapter 14: Confirming Everything! Doing Due Diligence 215

    Digging into the Due Diligence Process 216

    Getting the process underway 216

    Allowing enough time for the due diligence phase 216

    Covering the expense 217

    Conveying the due diligence info to Buyer 218

    Business as usual: Running the company during due diligence 218

    Providing Appropriate Information 219

    Corporate info 220

    Operations 221

    Financials 221

    Sales and marketing info 222

    Real estate and facilities info 223

    Fixed assets 224

    Inventory 224

    Supplier info 225

    Intellectual property 225

    Human resources 226

    Debt and financial dealings 226

    Environmental concerns 227

    Taxes 228

    Contract information 228

    Insurance 229

    Litigation history 229

    Governmental filings 231

    Considering Requests for Additional Information 231

    Chapter 15: Documenting the Final Deal: The Purchase Agreement 233

    Drafting the Deal 234

    Writing the first draft 234

    Redlining the initial draft 235

    Navigating the Final Purchase Agreement 235

    Confirm the name, rank, and serial number of the deal 237

    Determine what’s being sold, for how much, and when 237

    Know what to bring to the closing 237

    Review the representations and warranties 239

    Secure against loss with indemnifications 243

    Agree on how to handle a rep and warranty breach 244

    Get acquainted with the exhibits and schedules 244

    Part 5: Closing the Deal . . . and Beyond! 247

    Chapter 16: Knowing What to Expect on Closing Day 249

    Gathering the Necessary Parties 249

    Walking Through the Closing Process 250

    Reviewing the flow of funds statement 250

    Signing the final purchase agreement and other documents 253

    Distributing the funds: Show me the money! 254

    Popping the champagne 254

    Tying Up Loose Ends Shortly after Closing 255

    Allowing time to fully close the books 255

    Making a working capital adjustment 255

    Chapter 17: Handling Post-Closing Announcements and Adjustments 257

    Start Spreading the News 257

    Telling Seller’s employees about the deal 258

    Making a media announcement 259

    Following Through: The Deal after the Deal 260

    Closing the loop on post-closing adjustments 260

    Wrapping up the contingent payments 261

    Dealing with Disputes 262

    Handling breaches 262

    Making claims against escrow 264

    Chapter 18: Come Together: Integrating Buyer and Seller 265

    Planning the Integration 266

    Assembling a Buyer’s transition team 266

    Determining the level of autonomy 267

    Covering the carve-out bases 267

    Communicating with Seller before the close 268

    Transition process: Planning the first 90 days 269

    Culling Products and Services 271

    Combining Operations, Administration, and Finance 272

    Handling Personnel: Successful First Steps for New Owners 274

    Addressing cultural differences 274

    Resolving conflict 277

    Acting like a leader at all times 279

    Making friends 280

    Instituting accountability 281

    Firing people 282

    Part 6: The Part of Tens 285

    Chapter 19: Ten Considerations Prior to Signing an LOI 287

    Is the Deal Too Good to Be True? 287

    How Is the Buyer Financing the Deal? 288

    How Much Cash Is in the Offer? 288

    What Are the Conditions of Escrow? 288

    Is the Deal a Stock or Asset Deal? 288

    How Does the Deal Settle Working Capital Issues Post-Closing? 289

    Is the Inventory 100 Percent Salable? 289

    Who Pays Off Any Long-Term Debt and What Happens to the Line of Credit? 290

    What Are the Tax Implications of the Seller’s Accounts Receivable? 290

    Is the Seller Signing a Noncompete Agreement with the Buyer? 290

    Chapter 20: Ten Major M&A Errors and How to Avoid Them 291

    Assuming the Deal Is Done after the LOI Stage 291

    Being Unprepared for Due Diligence 292

    Asking for a High Valuation with No Rationale 292

    Figuring Buyers Won’t Discover Problems in the Financials 292

    Underestimating the Other Side’s Sophistication 293

    Failing to Understand Who Really Has the Power 293

    Withholding Material Information 293

    Blabbing about the Deal Before It Closes 294

    Calling the Seller’s Employees without Permission 294

    Contacting a Seller’s Customers or Vendors without Authorization 294

    Chapter 21: Ten Possible Ways to Solve Valuation Differences 297

    Payments over Time 297

    Earn-Out Based on Revenues 298

    Earn-Out Based on Earnings 298

    Earn-Out Based on Gross Profit 299

    Valuation Based on a Future Year 299

    Partial Buyout 299

    Stock and Stock Options 300

    Consulting Contract 300

    Stay Bonus 300

    Combo Package 301

    Appendix 303

    Index 333

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