Tips For Navigating Company Mergers And Acquisitions | Dunlap Bennett & Ludwig PLLC
According to research from Harvard Business Review, the vast majority—between 70 and 90 percent—of mergers and acquisitions fail. Successful corporate transitions begin by anticipating potential challenges.
11 Tips for Successful Corporate Acquisitions
Here are some tips for navigating company mergers and acquisitions that can reduce the risk of failure and ease some of the headaches of corporate acquisitions.
Get your legal team involved early
A critical factor in successful mergers and acquisitions is early legal involvement. Engaging your legal team from the onset allows for proactively identifying and resolving potential legal issues. By understanding the specific legal landscape and regulatory requirements surrounding the transaction from the start, you will be better able to structure the transaction to maximize value, limit risk, and avoid and address potential roadblocks.
Legal involvement is particularly crucial during the due diligence phase. Your legal team should coordinate the review of the target company’s financial, operational, and legal aspects so you can identify risks and opportunities, make informed decisions, and mitigate risks.
Craft a clear communication strategy
Effective communication is the cornerstone of a successful merger and acquisition process. A transparent communication strategy is essential for managing expectations and building stakeholder trust between buyer and seller. Transparency is especially crucial for the seller in building trust and rapport with the buyer. Maintaining open lines of communication helps minimize uncertainty and fosters a positive environment for all parties involved. When dealing with potential changes in leadership, organizational structure, and business operations, buyers and sellers need to coordinate the timing and content of the messaging.
Attorneys can help you develop a communication plan that anticipates concerns and keeps the appropriate parties informed at the proper stage of the transaction process.
Ensure regulatory compliance
Whether it involves obtaining necessary approvals or filing required documentation, ensuring legal and regulatory compliance is non-negotiable. Failure to comply with these requirements can lead to delays, fines, or even the failure of the entire transaction.
Legal counsel can help navigate these complexities and satisfy regulatory obligations.
Understand contractual obligations
Negotiating favorable terms in contracts is a critical aspect of protecting your interests. Your legal team should be adept at identifying areas of concern and ensuring contractual terms align with your strategic objectives. This alignment includes addressing issues related to representations, warranties, and indemnities in the purchase agreement.
Beyond the transaction, a thorough review and negotiation of existing contracts is necessary. Examine existing agreements of the target company, focusing on assignment, change of control, termination clauses, and any potential liabilities that may arise post-transaction. Contracts that require third-party consent to assignment (e.g., leases and customer and vendor agreements) should be identified early in the transaction process to ensure closing is not unnecessarily delayed.
Consider employment-related issues
People are a company’s most valuable asset, so managing issues relating to your human capital early in the process is essential. Develop strategies for retaining key talent, managing workforce transitions, and ensuring compliance with employment laws.
Understanding the cultural nuances of both organizations is vital during this phase. Your legal team plays a pivotal role in developing a comprehensive plan for integrating the workforce, aligning company cultures, and fostering a positive environment that boosts employee morale and productivity.
Protect your intellectual property
Intellectual property is a significant driver of a company’s value, so work closely with your intellectual property attorneys to proactively identify any potential risks or opportunities. Start by reviewing the target company’s patents, trademarks, copyrights, and trade secrets. Developing strategies to protect and leverage these intellectual assets is critical. You may need to update or secure patents, ensure compliance with licensing agreements, and mitigate potential IP-related disputes
Set up dispute resolution mechanisms
Anticipating potential disputes is a realistic aspect of mergers and acquisitions. Incorporating effective dispute resolution mechanisms into the purchase agreement is crucial. Clearly define the processes for resolving disputes large and small. For smaller disputes such as post-closing calculations related to net working capital, it may be best to use a pre-determined and mutually agreed-upon accounting firm. For larger disputes, you may elect to include provisions requiring mediation, arbitration, or litigation depending on the nature and size of the dispute or other relevant factors.
A well-structured dispute resolution mechanism can save valuable time and resources in post-closing conflicts. Your legal team should work to strike a balance between protecting your interests and promoting a fair and efficient resolution process.
Establish financial guardrails
Financial planning is a critical component of a successful transaction. Work closely with your legal and financial teams to establish a clear budget for the transaction. This budget should include integration costs, potential adjustments to the purchase price, and other financial considerations.
Monitor financial performance regularly throughout the process to ensure the transaction remains on budget. Establishing a robust financial framework provides clarity and helps manage expectations, contributing to the overall success of the transaction.
Plan for the integration
Mergers and acquisitions don’t end with the closing; they also involve the post-closing integration process. A well-executed integration plan contributes to the overall success of the transaction and positions the newly formed entity for sustained growth. An experienced legal team can help you develop a detailed integration plan encompassing key aspects of integrating two entities, including establishing the proper organizational structure, choosing the right technology, and finding synergies.
Integrating the merging entities’ cultures is a critical yet often overlooked aspect of transactions. Effective communication is vital during this phase to ensure employees understand the changes and feel supported throughout the acquisition process.
Post-closing obligations and transitional support
Ensuring a structured approach to post-closing obligations minimizes uncertainties and facilitates a seamless transition. Collaborate with your legal team to define responsibilities, transitional support, and any ongoing obligations post-transaction. These transitional tasks may include employee training, customer support, or other commitments outlined in the purchase agreement. Be sure your agreements clearly define the responsibilities of each party to set the stage for a successful post-transaction period.
Retain counsel to navigate the complexity of mergers and acquisitions
Navigating a merger and acquisition is a multidisciplinary, complex journey fraught with risk. An experienced legal team can partner with you to navigate the complexities of the process and help businesses avoid pitfalls.
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