When planning an M&A deal, paying for the deal matters. The sellers want their money sooner than later, but the buyer is usually buying a going concern with income, expenses, assets and liabilities. And should contingent consideration be used in case any surprises emerge?
Therefore, finance is an all-important factor in M&A. Possible ways of paying for an M&A deal include:
- Cash consideration
- Using borrowing if adequate facilities and collateral are available
- Deferred payment/installments to enable payment at fixed future dates
- Earnout clauses e.g. percentage of sales if they materialize
- Share (stock) consideration, especially if the shares would be listed on a stock exchange and the price seems stable. Lock-up periods may be specified.
- Joint venture until agreed conditions are met.
- Option to sell, or option to buy.
Factors that may need to be taken into consideration may include:
- Available collateral
- Expected cash flow based in detailed modelling
- Stock exchange requirements
- Credit rating
- Investment bank support
- Etc.
Next Steps include:
- Start planning the ingredients of your proposed acquisition or sale based on the above.
- Many of the surprises may be predictable with proper preparation.
- Consider whether the buyer is good for the money? Does the buyer have proof of funds from a reputable financial institution?
- Consider whether payment to the seller should be linked to actual performance (contingent earn-out) after the deal?
- Are there withholding tax, VAT or other tax issues relating to payment of the consideration?
- What is the other side really after? Can you read between the lines?
- Consult legal and professional advisors in each country concerned in specific cases.
- Contact us if you are looking for an M&A candidate to buy or sell.
- Contact us if you have your candidate and want to prepare for an M&A deal.
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