30 Jun 5 M&A Myths and How to Deal with Them
Where your money is concerned, myths can hurt you. In a recent Divestopedia article from Tammie Miller entitled, Crazy M&A Myths You Need to Stop Believing Now, Miller explores 5 big M&A myths that can get you in trouble. She points out that many of these myths are believed by CEOs, but they have zero basis in reality.
The first major myth Miller explores is the idea that the “negotiating is over once you sign the LOI.” The letter of intent is an important milestone in the business sales process. However, it is by no means the end of the negotiations and it is potentially dangerous to think otherwise. The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process. For this reason, it is important to not see the LOI as the “end of the road.”
Another myth that Miller wants you to be aware of is that you don’t have to take a company’s debt as part of the purchase price. Many M&A advisors recommend that buyers don’t take seller paper for certain types of transactions.
A third myth that Miller explores is a particularly dangerous one. The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true. Oftentimes, people will make offers without securing the money or financing to actually buy the business. This wastes everyone’s time. As the business owner, it can derail the sales process. If you are not careful, it could actually prevent you from finding a qualified buyer.
Another myth is built around the notion that sellers don’t need a deal team in order to sell their business. Again, this is another myth that has no real foundation in reality. While it may be possible to sell your business without the assistance of an experienced M&A advisor, the odds are excellent that doing so will come at a price. According to Miller, those working with an investment banker or intermediary can expect, on average, at least 20% more transaction value.
Additionally, there are other dangers in not having a deal team in place. An M&A advisor can handle many of the time-consuming aspects of selling a business, so that you can keep running your business. It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.
Miller’s final myth to consider is that you must sell your entire business. It is true that most buyers will want to buy 100% of a business, but a minority ownership position is still an option. There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair. You may also have an option to divest, or sell a division or product line, and retain the rest of your business.
Ultimately, Miller lays out an exceptional case for the importance of working with experienced, professional advisors when selling or buying a business. They can help you avoid myths and guide you through the process to a successful outcome.
Copyright: Business Brokerage Press, Inc.