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When it comes to the M&A business, there are those who have never done a deal before and believe they know everything, and there are those who are experienced but often make ill-advised mistakes. We have created a list of the top eight common M&A mistakes that you should be aware of.
1.) Assuming the deal is done after the LOI is written.
The letter of intent (LOI) is a key document because it defines the basics of the deal and becomes the foundation for the purchase agreement. Sellers and buyers alike often make the mistake of thinking a signed LOI means all the work is done.
2.) Asking for a high valuation without any rationale.
Many first-time deal makers make the mistake of thinking that if they ask for a high price, they’ll get it. This notion is also compounded by the seller’s own opinion of his company’s worth. The buyer always needs a concrete reason for a higher valuation.
With clear communication comes a successful deal. This not only means being clear with what you are presenting to the potential buyer or seller, but it also means being up front with all pertinent information. Below is our continued list of the top eight common M&A mistakes you should know.
3.) Hiding financial issues.
Hoping the buyer doesn’t discover discrepancies or problems with the books isn’t a realistic approach. Buyers hire accountants and auditors to pore through a seller’s financials. As a seller, you’re better off owning up to any problems in the financials and share that information with the buyer.
4.) Failing to understand who has control.
During the M&A process, power shifts between the buyer and seller. A large error by novice deal-makers is to miscalculate their power. Failing to understand the amount of power you have simply increases the odds you’ll misread the situation and make the wrong move.
For further assistance in your company's merger or acquisition, contact the region's premier business brokererage firm, George & Company.