Whether you are buying, selling or merging a business, maximizing returns on investment and minimizing risk requires planning and preparation. From due diligence, valuation, quality of earnings reporting to assisting with the exchange of information, our team will be there from start to finish.

Mergers and Acquisitions Process When Acquiring a Business

Being prepared for mergers or acquisitions is the best way to get the most value out of a transaction.

Having a team of trusted advisors throughout the process to advise you from cradle to grave and provide you with the right information makes the transaction smoother and increases the probability of a successful transition.

Finding a Target

When you are ready to find a business to acquire, you have several options. You can reach out to your network to find out if anyone is retiring or looking to sell or even work with a business broker to find the ideal target or suitor.

Business Valuation

Work with us to ensure you are not overpaying for a business or underpricing yours. The accuracy of financial reporting and numbers is crucial at this stage. It will be the basis of all negotiations going forward. Our team of experts will help you properly vet potential businesses, their operations and financial reporting or maximize the value of your existing ones.

Letter of Intent

A Letter of Intent, often referred to as an “LOI”, is a non-binding proposal in the form of a letter that sets the framework for a transaction to take place, typically provided in the early stages of negotiations. It often contains a price, timelines for meeting milestones, and may include additional details pertaining to the execution of the transaction.

Due Diligence

For forty years we have been helping businesses in a range of industries. When you work with us on due diligence in mergers and acquisitions, you will have a team of knowledgeable professionals assisting you in determining:

if the pricing reflects the value
if financial assets have been documented correctly (assets and employees)
the possible existence of unrecorded corporate liabilities
the income tax exposure with tax authorities
if legal review is needed

Mergers and Acquisitions Process When Being Acquired

In a merger and acquisition transaction, success hinges on diligent preparation and strategic foresight. Below, we highlight three critical focus areas that businesses must address to secure a favourable outcome:

1. Mitigate Business Risks

Safeguard the M&A process by thoroughly managing financial and operational risks. This includes conducting prudent financial due diligence and orchestrating strategic operational integrations to maintain productivity. Further, mitigate market risks by having a deep comprehension of current trends and customer preferences.

2. The Importance of Robust Cash Flow

Prioritize earnings and cash flow to foster financial stability, facilitate long-term growth, and promote synergy realization. A resilient cash flow strategy builds investor and stakeholder trust, showcasing adept post-acquisition management.

3. Securing the Future with Succession Planning

Incorporate a succession plan in your M&A strategy to ensure a smooth leadership transition and align with your company’s goals. A detailed succession roadmap nurtures vital relationships and preserves essential expertise, serving as a protective measure in risk management.

Being always ready to sell is essential, as unforeseen opportunities may surface. Adequate preparation entails maintaining precise financial records, streamlined documentation, regular value assessments, legal adherence, fostering a potent leadership team, and sustaining market position. However, readiness is frequently sidestepped due to complacency, unawareness, or a predominant focus on operations.

Lack of readiness can trigger missed opportunities, undervaluation, protracted timelines, negotiation frailties, reputation tarnish, and amplified stress during discussions.

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What Are Mergers and Acquisitions?

Mergers are two companies combining into one where both owners retain their ownership of the business. Acquisitions refer to a majority purchase of a target company with a controlling interest.

A minority interest is acquired when a buyer obtains less than 50% ownership and therefore does not obtain outright control of the subject company.

What are the 4 types of mergers and acquisitions?

The four types of mergers and acquisitions are:

Horizontal Mergers: These involve the combination of companies operating in the same industry and at the same stage of the production process. The aim is often to increase market share, reduce competition, and achieve economies of scale.
Vertical Mergers: In vertical mergers, companies from different stages of the supply chain come together. This can include a supplier merging with a manufacturer or a distributor merging with a retailer. The goal is to streamline operations, reduce costs, and improve efficiency.
Conglomerate Mergers: Conglomerate mergers involve companies that are unrelated in terms of industry and business operations. The goal is to diversify risk and create synergies between different business lines.
Market Extension Mergers: Also known as concentric mergers, these involve companies operating in the same industry but in different geographical markets. This allows the merged entity to expand its customer base and distribution reach.

Each type of merger serves different strategic goals and can offer unique advantages based on the companies’ objectives and the industries in which they operate. Need help with a business transition? Let’s Chat.

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8 Benefits of Mergers and Acquisitions

1. Achieve more together

Mergers and acquisitions, when executed with care, can be beneficial for both parties. With strong alignment between the two companies, both can benefit from the added reach, additional resources, and greater market share that comes from becoming one larger company.

2. Recruit stronger talent

As a larger, combined company, you may attract higher quality talent simply by being seen as a powerhouse in your industry. Your combined resources may also allow you to compensate talent at higher rates than your competitors.

3. Experience less competition

Some mergers and acquisitions effectively remove competition, which is beneficial to both companies. With less competitors in the market, companies are able to flourish and experience the growth that comes with a larger market share.

4. Enter new markets

Entering a new market can be challenging, especially if you’re starting from the ground up. Acquisitions and mergers with companies in two separate markets (either geographically or demographically) can speed up that process by leveraging access that already exists.

5. Create a smart succession plan

As owner-operators enter their retiring years, the question of what will happen to their business is bound to arise. Merging or being acquired by another company can ensure a seamless transition and allow owner-operators time to transition their business in a manner that is aligned to their values.

6. Get started with a new offering with less start-up time

If your business has been considering adding a new product or service, acquiring a business (or merging with one) that has already established that offering will get you to market faster than starting from scratch.

7. Make a smart long-term investment

Some businesses may be undervalued due to a swing in the market, temporary setback, or because it’s just getting off the ground. If you see the potential in a business, acquiring it may pay off in the long run when its value bounces back or grows in the future.

8. Diversify your business

If your business is focused in an area that is showing signs of becoming obsolete, acquiring or merging with another business in a more prosperous area can be a smart long-term move.

Accounting for Mergers & Acquisitions

At SB Partners, you’ll receive trusted accounting advice from our chartered accountants who specialize in mergers and acquisitions.

Accounting plays a pivotal role in mergers and acquisitions through financial due diligence, valuation assessment, accurate financial reporting, and strategic tax planning. Collaborating with a Certified Public Accountant (CPA) is essential in this process due to their expertise in financial analysis, regulatory compliance, and risk mitigation. CPAs conduct comprehensive due diligence, ensuring thorough assessment of financial risks and opportunities.

FAQs

Why can mergers and acquisitions fail?

Failed mergers and acquisitions can be the result of a number of things including a lack of proper planning, cutting corners on due diligence, conflicting cultures amongst companies, and unexpected market conditions etc.

What are some of the challenges faced by mergers and acquisitions?

Proper planning and an implementation strategy will help smooth transitions. Though challenges will be sure to present themselves. Some challenges of mergers and acquisitions to look out for are:

Employee buy-in;
Proper introductions, transitions and transfers among suppliers, vendors and customer relationships to new owners/management
Failure to spend sufficient time required to integrate due to solely focusing on the core existing operations of the target companies, an acquisition is often distracting as it is not a core competence of the buyer or seller.

How long does a merger or acquisition take?

Typically, a merger or acquisition takes between 6 months for the transaction to take place. And an additional 6 months to 3 years for the transition to take place. This usually depends on the extent to which the original business owner is involved in the day-to-day operations.

How do mergers and acquisitions compare to joint ventures?

Here are some comparisons between mergers and acquisitions to joint ventures:

In mergers and acquisitions:

One company acquires another, leading to a change in ownership and control.
Merged companies fully integrate their operations, processes, and resources.
A merger and acquisition often results in the target company becoming part of the acquiring company’s legal entity.
Mergers and acquisitions aim for synergy, cost savings, market dominance, and expansion.
This may involve dissolution of the acquired company as a separate entity.

While in join ventures:

This involve two or more companies collaborating while retaining their separate identities and ownership.
Companies maintain autonomy in their operations and management.
It can be standalone legal entities or contractual agreements without a separate legal entity.
This can be formed for specific projects or ventures to share expertise, risks, and resources.
Companies can share risks, costs, and rewards based on their agreed-upon terms.
This can be dissolved after a project is completed or when objectives are met.

Areas Served

Our team of chartered professional accountants work with clients across Southern Ontario, including:

Burlington
Oakville
Hamilton
Mississauga
Brampton
Guelph
Kitchener
Milton
Cambridge
Grimsby
St. Catherine

Our Mergers & Acquisitions Team

Rob Smith

Senior Manager, Valuations

Ian Lobo

Principal, Valuations

Trevor Hood

Partner and President, Valuations

Robert John Gergely