Mergers and Acquisitions For Dummies (4 page)

You may be asking yourself, “Why the specific delineation of middle market and lower middle market companies?” Those two market segments, defined roughly as companies of $250 million to $1 billion in revenue (middle market) and $20 million to $250 million in revenue (lower middle market), are often overlooked by larger banks. The deals aren't as large, the companies aren't as famous or “sexy,” and when you have a plethora of top-tier MBA grads all clamoring to make a million bucks a year, the smaller fees from these smaller deals just aren't of interest.

Although the lower middle market deals aren't front-page headline blockbusters, the fact is the middle market and lower middle market are comprised of many more companies than the Fortune 500, which, when you think about it, is exactly 500 companies. The owners and executives of many, if not most, lower middle market companies are wholly unfamiliar with the business of selling a business and are therefore the perfect audience for this book. But although middle market and lower middle market company execs may be this book's target audience, the information here is applicable for just about any kind of business sale transaction.

How This Book Is Organized

I organized
Mergers & Acquisitions For Dummies
in five essential parts. These parts cover the main facets of doing deals, from an introduction to the basics to the courting process to the documents and meetings involved to integrating Buyer and Seller.

Part I: Mergers & Acquisitions 101

Part I gives you the lowdown on M&A's foundations. Chapter 1 introduces you to some of the basic building blocks in the M&A world: words, phrases, decorum, players and their motivations, and generally accepted steps to buying and selling companies. Chapter 2 analyzes the rationale and motivations of Buyers and Sellers so that you can better understand the folks on the other side of the table (and maybe get some insight into your own goals as well). In Chapter 3, I provide an outline of the generally accepted M&A process; you have a much better chance of making a successful deal when you know what steps to follow.

Part II: Taking the First Steps to Buy or Sell a Company

When you actually want to do deals, as opposed to merely thinking about doing deals, Part II gets you started on the first steps. You need money (or seashells, cigarettes, or some form of consideration that the Seller finds acceptable), and Chapter 4 offers some thoughts about financing M&A deals. Every deal-maker needs a little (well, a lot of) help, so Chapter 5 lays out the advisors you need in order to successfully buy or sell companies. M&A is really a form of dating, except with meetings, boring documents, and grueling travel. Chapter 6 provides you with colorful tips for successfully approaching Buyers or Sellers and explains why M&A is one of the few industries where selling is easier than buying.

Part III: Starting the Deal on the Right Foot

In this part, I show you how to get going on a deal. Chapter 7 quietly discusses the cloak-and-dagger world of confidentiality. Chapter 8 deals with the offering document, which is basically the story a Seller tells a Buyer about the company, as well as how to write it and what to look for when you review it. M&A requires a certain level of discretion, and that level is high! In Chapter 9, I introduce you to the form and function of the indication of interest (IOI — this field loves its initialisms) that Buyer offers Seller when Buyer's ready to move from talking about doing a deal to providing specific thoughts on an actual deal. (What can I say? M&A loves crafting documents, too.) The next steps are the management meetings between Buyer and Seller; Chapter 10 helps you navigate these meetings, which don't have fancy abbreviations but can be tricky.

Part IV: Firming Up the Deal

When Buyer and Seller agree to do a deal, what's next? Part IV's topics, that's what! First, Buyer and Seller have to agree to terms; M&A deals involve layer upon layer of complexity that you can and should negotiate. Chapter 11 takes you to the smoke-filled back rooms where deals are made; all cigar-chomping is figurative.

Chapter 12 plows the fields of valuation for you and reaps an answer to that most nagging of questions: What the heck is this company worth?

When Buyer and Seller want to stop playing the field and get married, they move on to the letter of intent (LOI). Chapter 13 takes you through the ins and outs of this key document. Due diligence is the next key phase; it's where Buyer and Seller confirm certain facts from the other side just to be safe. Chapter 14 fills you in on what to expect during the confirmatory due diligence phase. Chapter 15 provides insight about converting the LOI and the results of due diligence into a final, binding purchase agreement.

Part V: Closing the Deal . . . and Beyond!

Part V helps you successfully conclude the deal. In Chapter 16, you get the insider's look at that important day. Chapter 17 details all the sordid adjustments one side or the other makes after the closing. After the deal is done and a new day has risen, Buyer and Seller must integrate and learn to live together. Integrating Buyer and Seller can be a difficult proposition that many people don't think about, so Chapter 18
tackles this hidden issue.

Part VI: The Part of Tens

The Part of Tens is a
For Dummies
classic, so of course this book includes it as well. Chapter 19 clues you in to important questions to ask before signing an LOI. In Chapter 20, I warn you against mistakes that can sink a deal, and Chapter 21 offers ways to come to an agreement on valuation. I also give you an appendix full of resources such as a due diligence checklist, helpful online sources, and some sample M&A documents.

Icons Used in This Book

I use the following four icons throughout this book to help draw your attention to particularly important or salient bits of information (and let you know what bits aren't essential):

This icon denotes info that can save you time and/or hassle as you work through a deal.

The Remember icon flags important points and concepts worth searing into your memory banks.

The text next to this icon is useful but not vital to the topic at hand; you can skip it if you're in a hurry or just want the need-to-know information.

I use this icon to highlight potential M&A disasters you want to avoid.

Where to Go from Here

No matter your immediate interests or needs, I highly recommend reading Chapter 3, which provides an overview of the process. An understanding of the typical steps involved in a business sale can help you as you read other specific sections. From there, you can dive in and out of this book as you please.

Beyond this book, the best advice I can offer for anyone who wants to buy or sell companies or work as an advisor in the M&A industry is to get off your duff and get in the game. Books are great, and I certainly hope you find
Mergers & Acquisitions For Dummies
to be an extremely valuable resource, but the fact remains that the best way to learn something is to do it yourself. The only way you can truly get a handle on buying and selling companies is to actually buy and sell companies.

I'm a big believer in “ground up” learning. No, I'm not talking about deli meats; I'm talking about getting your hands dirty and learning business from the ground up. You're going to make mistakes, but finding out what doesn't work is the best way to learn. If you want to be successful in M&A (as a Buyer, a Seller, or an intermediary), you're best served if you can talk from a level of actual experience. Those experiences should ideally include successfully selling a product or service, interacting with customers, hiring and firing employees, merchandising, marketing, working in human resource compliance, banking, making a payroll, filing taxes, and bookkeeping. (Mopping some floors and scrubbing a few toilets won't kill you, either.) You don't want to be the only one at the table who hasn't dealt with real-world business issues and problems. Being the least-qualified person in the room is never a good thing!

One of the big ironies for the investment banking world is that most people who do what I do didn't start their careers with the plan of being an investment banker. I'm often asked how to get into the investment banking industry. I always say the same thing: “Most of us who do this didn't choose this career. Go do something else. Get involved in a business first, and then segue into investment banking.”

One final thought: One of the keys to M&A is accounting. If your accounting skills are suspect (or nonexistent), you need to take a class, stat! Most community colleges offer accounting classes, and you can probably audit the class instead of taking it for credit.

Part I

Mergers & Acquisitions 101

In this part . . .

T
his part delves into the basics of M&A: The players, their motivations, the terms, the nomenclature, the conventions of the industry, and the rules and regulations. I also discuss reasons to buy or sell a company, and I walk you through the generally accepted process of buying or selling a company on a step-by-step basis.