How to Choose an M&A Broker

It is difficult for small companies to compete with large companies that have long occupied a niche in their industry. In addition, a successful business startup requires a lot of capital and resources, which not all entrepreneurs have. In these situations, M&A can be a great solution.

These are types of reorganizations of commercial organizations to combine two or more business entities and merge their capital. Such transactions provide opportunities to increase capital, resources, and other critical business performance indicators.

Merger and Acquisition: Differences in Concepts

Mergers and acquisitions are often seen as equivalent, but this is not true.

A takeover is a process that results in the complete control of one company over another. It takes place through the purchase of part of the share capital of the absorbed company, which must be at least 30%. Depending on the interests of the participants in the process, we can distinguish two main groups of takeovers:

Friendly — takes place by agreement of shareholders and managers of the absorbed company;
Aggressive — takes place against the will of those to be absorbed. Sometimes the absorbed company is not even aware of the actions of the “sinker.”

Merger — a process that results in the union of two or more companies, resulting in a new organization. This process is divided into the following types:

The merger of forms — merger, as a result of which previously independent companies cease to exist, and the newly created legal entity are given all the assets, rights, and obligations of the previous ones.
The merger of assets — merger, which is characterized by the transfer of exclusive rights of the companies to the new legal entity while they continue their activities.

In this case, one of the companies continues its activities while the other companies are liquidated. Their rights are transferred to the remaining company.

Purpose of acquisition and merger

The main goal is to increase profits. The main motive behind most M&A deals is the synergistic effect. This is a complementary cooperation of two or more companies, as a result of which a better outcome and higher profits are predicted. There are also other motives:

The possibility of obtaining additional discounts from suppliers for raw materials and other resources due to an increase in the volume of purchases.
Joint activities in new developments require the pooling of financial and intellectual resources.
Reduction of tax costs by obtaining benefits.

This can be aimed at improving performance by having two or more companies with complementary resources. Together they cost more than they do separately; subsequently, each gets the missing resources.

Gaining capital market privileges through access to the most favorable credit terms. Such advantages are available to the largest corporations, considered first-rate borrowers.

They are only sometimes motivated by direct savings of money. However, in some cases, they pursue the following:

An opportunity to demonstrate high performance, such as an increase in stock price, growth in output, or an increase in capital;
To increase the image due to the growth of its scale and increase the level of incentives for managers;
Striving for a size where the business becomes an additional guarantee of stability.

Thus, the number of motives driven by financial savings and unrelated to direct monetary benefits can be huge — they all depend on specific situations.

M&A: types and features

There are the following types of mergers and acquisitions:

Horizontal — merger with the same type of activity.
Vertical — merger with different kinds of activity.
Parallel — merger, whose products are interconnected.
Circular — merger, whose activities were not previously connected in any way.
Reorganization — companies with different lines of activity are merged.

Mergers and their types are also divided by national indicators:

Domestic — are made in one country;
Export — provide for the transfer of rights to foreign organizations;
Import — provide for the acquisition of rights of companies of foreign countries;
Mixed — participants in the transaction may be companies whose assets are located in different states.

In addition, M&A transactions are classified by geographical location: transnational, international, national, regional, and local.

M&A Broker: transaction support

Today the M&A market remains dynamic. The purpose of capital transactions is to increase the efficiency of a company’s operations by acquiring (joining) the assets of other market participants or the participants themselves.

As a rule, the initiator of the transaction believes that the cost of the acquired object is understated, and the thing itself can increase the profitability of the business if it is effectively managed or the initiator aims to differentiate the existing business.

Companies that have decided to merge aim to increase their market share and squeeze out competitors by combining their capital.

The regulation and planning of the capital acquisition process is a critical stage in realizing the parties’ intentions. A pre-transaction legal analysis and an independent market value assessment of the acquired company or its assets help reduce or eliminate possible negative consequences before the transaction occurs.

What services M&A Brokers are ready to offer to their clients

Professional assessment of financial condition, calculation of market value, and legal analysis of the acquired asset.
Organization of negotiations, the conclusion of an agreement of intent between the parties to the transaction, stipulating rights and obligations, including the obligation to provide the necessary information.
Structuring the transaction. Considerable experience in litigation and claims work enables us to foresee and promptly eliminate “bottlenecks” in a transaction, thus guaranteeing the client’s interests. Certified auditors’ recommendations will give us a complete picture of the tax implications of specific actions.
Closing the deal. Settlements, registration of rights to acquired assets, etc.

How to choose an M&A Broker: tips

Choosing an M&A Broker can be critical to a successful transaction. Here are a few steps that can help you choose the right M&A Broker:

Determine your needs: determine what services you need. Some merger and acquisition brokers specialize in specific industries, others have particular expertise in finance and business valuation, and some may offer a wide range of services, including strategy consulting, valuation, finding buyers, etc.
Check reputations: there are many online resources where you can learn about reputations. One such resource is the Better Business Bureau website, where you can find information on ratings and complaints.
Check experience: find out how many years the broker has been in the M&A business and how many deals he has done. This will help you understand his experience in the field and how many projects he has completed.
Assess communication skills: It is important to choose professionals with whom you can easily communicate and who can represent your company well to potential buyers. Ensure the broker has good communication skills and can explain all aspects of the deal well.
Please inquire about fees: M&A Brokers may charge different fees for their services. Know a particular candidate’s costs up front and compare them with others to ensure you get the best deal.
Ask for references: Ask friends, colleagues, and other entrepreneurs for recommendations. This can be very helpful in getting a second opinion.

Why it is essential to choose responsibly

This is a critical process that can significantly impact the outcome of the deal and even your company’s future. Some of the reasons why it is essential to choose an M&A broker responsibly:

Quality of the transaction: the quality of the original transaction is directly related to how experienced and qualified the lawyers are. A more experienced and qualified broker can help you get a better deal and reduce risk.
Confidentiality: a law firm must guarantee privacy and protect confidential information. Failure to maintain confidentiality can lead to unpleasant consequences, such as leaks of personal data, broken relationships with clients and partners, etc.
Choosing the right buyer: helping you find the right buyer. This is very important to protect the interests of employees and shareholders.
An expert opinion on the current market situation and help you make the right decision. This can be especially helpful if you need more relevant experience.
Speeding up the process: An experienced lawyer can help speed up all legal procedures and minimize adverse effects on the business. This can be especially important if you have limited time or want to minimize disruption to your business.

This is an important step that can have long-lasting consequences. Therefore, it is essential to approach this issue responsibly and choose carefully the M&A broker that best suits your needs and goals.

Advantages and disadvantages of such deals

As in any other case, there are both advantages and disadvantages. Let’s consider the main ones.

Pros:

The easing of competition;
High probability of achieving good performance in a short period due to the efforts of both parties;
The possibility of buying undervalued assets;
Acquisition of a well-functioning sales system;
Chance to enter new geographical markets.

Cons:

A high proportion of the risk of mispricing;
Significant financial costs associated with the payment of bonuses to shareholders;
Difficult to integrate when areas of activity do not overlap;
The risk of incompatibility of cultures in a cross-border merger;
Possible problems with the personnel of the acquired organization.

Conclusions

Choosing an M&A broker is a critical process for a successful transaction. Experienced and qualified lawyers will help you get the best deal terms, ensure confidentiality, find the right buyer, provide an expert opinion, and speed up the transaction process. Therefore, choosing responsibly and carefully evaluating experience, reputation, and professionalism is necessary.