M&A Process – What is it?
The M&A process is a merger and acquisition process that includes all actions needed to merge or acquire a company. It is a process that happens when one decides to sell or transfer a company to another party. At Unija Smart Accounting, we ensure that these processes are done correctly, as we specialize in business transfers and M&A processes. We will take care of all the steps, including:
- research,
- planning,
- closing,
- due diligence,
- as well as implementation activities.
When and How Does the M&A Process Happen?
Every business has a unique story behind it. Usually, when an owner of a business wants to retire or change their profession, businesses are inherited by their successors. But, if the owner does not have anyone who would (or wants to) inherit the business, there is usually a decision to sell the company.
So, what happens to the company after the owner’s withdrawal? What are some of the possible and best solutions for their specific type of business?
There are four main business transfer methods:
| 1 | Transfer or sale to the owner’s family members |
| 2 | Transfer or sale to other parties – external individuals or stakeholders |
| 3 | Sale of the company to another company (mergers) |
| 4 | Liquidation |
In order to answer these questions in more detail, and get familiar with the processes, you need to consult people with experience in business transfers. That is why, this article will give you some idea about how all of this works using Unija Smart Accounting’s experience and expertise.
Transfer of a Business to Family Members
When it comes to a transfer of business to family members, this process usually involves members of the owner’s family who are already involved in the business or will be in the future.
This process usually begins with the transfer of the company management to one of the family successors, but the transfer of company ownership might follow at a later date. Ownership can be transferred contractually to family members after the owner’s death or while they are still alive. The company (business share) can be inherited as well. Ownership transfer after death could be defined in the owner’s will, or in the probate proceedings.
For the business to be and stay successful, the next generation must be committed and well-informed.
M&A Process: Selling A Company
When selling a company, owners usually do not have someone who would (or wants to) inherit the business. Also, it could be that the owner wants to retire and secure funds for retirement.
Companies can be sold to external parties or to employees who are already working for the owner. This is similar to the M&A process with family members because the employees are already used to the system and are familiar with the business.
The sale is not always an easy task. Many things need to be considered in great detail. One of the most important steps is determining the value of the company. This is a complex process since determining the value does not always produce the same results since many different methods are used during the evaluation.
How to determine a company’s value?
There is no definite answer to this question as the value is usually determined by how much the seller is ready to sell it for and what the buyer is prepared to buy it for.
However, there are objective parameters that might help while identifying a company’s value. These approaches include:
- reviews of all financial statements,
- comparisons of similar companies,
- and cash flow discounting models.
Company owners usually hire professional company valuers that may conduct an analysis of the company’s capital structure, its management, the market value of its assets, or future profit possibilities.
Seven Stages of Selling a Company
There are seven stages that sellers need to go through when selling a company. The M&A process can be very complicated overall, so it is important to know where to start.
| Preparing the company for sale | Before selling a company, an owner needs to have a clear vision for it as it may serve as an inspiration for the potential buyers. Also, it is important that the owner takes care of all the company documentation, legal and tax matters, finance, and relations with all employees and stakeholders. It is important to hire a team that consists of a tax consultant, a sales consultant, and an accounting and legal consultant which will help the seller prepare everything for the sale. At Unija Smart Accounting, M&A processes are much easier as we offer these services. |
| Preparing the needed documentation | It is important to hire a team that will gather all documentation and prepare a good presentation of the company which will attract buyers. Two basic documents include the information memorandum and the profile of the company (teaser). These documents will provide great insight into the company that willprovide information that will be useful for the buyers. |
| Analyzing all potential buyers | Customers, employees, and suppliers could be your buyers. It is important to investigate who could be interested in buying your business (it could also be your competitors). Your team needs to prepare a detailed list of all potential buyers that you may want to contact. |
| Presenting the documentation | Letters of intent might be needed before discussing the sale as it will present the seriousness of the buyer. Also, it is needed to sign a non-disclosure agreement. |
| Negotiating | Before the negotiations, it is important to present the company in the right way. Negotiations are a crucial part of any sale. They are focused on defining possible payment methods, tax liabilities, cost sharing, guarantees, etc. Also, it is needed to prepare everything for the due diligence report. |
| Closing the transaction | At this stage, it is crucial to have professional legal assistance. This will ensure that the company transfer fulfills every agreement. Also, it will safeguard the customer’s interests. A good professional team on the owner’s side will ensure that they obtain the best price. |
| Integration of the acquirer into the company | This part will start early on in the process, but it will intensify after the sale. The successful integration will lead to satisfied customers and employees, as they are the ones who might feel the change the most. |
Due Diligence
A due diligence review is an extensive review process that is needed before closing the transaction. This needs to be done in M&A deals in order to thoroughly assess the capabilities, operations, financial performance of a business, and assets.
There are several types of due diligence reviews, including:
- Financial: verifying if the data presented in the memorandum is correct.
- Legal: analyzing the legal relationships and potential exposure to lawsuits or sanctions
- Tax: complete analysis of the company’s future and past tax liabilities
- Technological: analysis of the product development and the technology in use
- Other reviews such as environmental, employee reviews, etc.
Legal Aspects in M&A Processes
While preparing the legal aspects of the M&A process, the owner should hire a legal consultant (another service that Unija Smart Accounting offers) who will examine all parts of the deal and give advice from a legal standpoint.
The following image shows all the data that is relevant to the legal due diligence.
Selling The Company: Tax Aspects
The seller of a company can be a natural person or a legal entity, and the tax effects of the sale will differ accordingly. This will also affect tax rates and the determination of the tax base. The M&A process is usually a taxable event, but in some cases, it may not be assessed (in statutory cases).
Tax Due Diligence
This part will analyze all of the company’s past and future tax liabilities in detail. Companies need to pay special attention to these areas:
| 1 | Reviewing obligations in respect of value-added tax |
| 2 | Payroll taxes review |
| 3 | Past years’ corporate tax review |
| 4 | Review of all other taxes |
| 5 | Tax records and decisions review |
| 6 | Analyzing the potential tax risks |
M&A Process: Conclusion
The M&A process can be a difficult and lengthy process, but its inevitability at times will make the owners want to do it correctly. We advise hiring a team that will help you make this process as less difficult and as successful as it can be.
At Unija Smart Accounting, we offer all the services needed, as our experience and expertise will facilitate these processes while professionally managing them.
