Dealing With The Antagonizing Questions In M&A

Forgoing the M&A process can be a long and tedious experience that can leave a bad taste in nearly anyone’s mouth, especially if that individual is not properly prepared for the questions that will be asked. It is important for the seller to understand that the buyers is going to ask many questions that will require detailed and meticulous answers. The logic behind the questions is not to interrogate the seller unnecessarily, or to embarrass the seller for aspects or business opportunities he or she may have missed. The questions are simply to help the buyers understand the business as thoroughly as possible in order to help them understand what they can do and will do after the transaction is complete.

Understanding the Buyers in an M&A Deal

  1. When a party is looking to make an acquisition most of the time the party is acting as a fund or a strategic acquirer who has a fiduciary responsibility to its investors or shareholders. In these cases the buyers will need to perform a thorough and detailed analysis on the company to show to their higher-ups that they understand the risks, opportunities and threats. If they don’t ask the questions they could lose the confidence of their investors.
  2. There are essentially two types of questions the buyers are going to ask in an M&A Deal. The first are related to quantitative issues. Each buyer has a sort of investment criteria that involve the size of the transaction. Some want deals below $1 million while others want deals that range at $5 – $20 million. Some companies that are failing and need some leadership to turn it around while others want companies that have been continually improving year-over-year. The questions they will ask will be aimed at determining how well of a fit the company will be for that criteria.
  3. The second set of questions will be aimed at determining qualitative issues. They need to understand how the business operates. If you sell a product what is the process of purchasing, selling, invoicing, advertising, and shipping the product. Who runs the day-to-day operations? What if that person leaves the company after or during the transaction? These questions help them to understand how the business can be improved as a selling point to their investors; they also help them understand how the business will continue after the owners move on. Remember, they need to understand the risks as a fiduciary responsibility.

Understanding the buyer will help the seller to stay focused on the important points within the transaction and avoid letting emotion frustrate the deal. It is vitally important that the seller disclose accurate information in the first discussions with the buyers. When a Banker is working with the seller most of the questions will be asked up front, however, many of the details will not be discovered until the due diligence phase. If the information disclose in this phase is not accurate then buyer will be mislead in estimating the business’s worth. This can be detrimental to the deal’s closing success.

Troy Jenkins
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