Mergers and Acquitions (M&A) can be an effective path to growing business by size - and by value. However, if one company has not been properly prepared for an exit, or if the merging businesses are the wrong fit or have competing cultures, value erosion can occur (e.g. Daimler Chrysler's $36 billion mega merger failed due to cultural fit).
To prevent deal value erosion in a deal, the potentially acquiring company should consider following the following five-point pre-deal tips:
1. Being proactive not reactive to deal strategy: What are the businesses you are interested in buying? What are the emerging technologies you are interested in buying?
2. Business plans and forecasts: Can they be shared externally? Does the forecast include a fully integrated model with a P&L, balance sheet and cash flow and can the key assumptions be flexed?
3. Working capital: How much cash is tied up in working capital? What is a normal level of working capital?
4. Confidential: Keep the deal confidential
5. Tax: What is the best structure in advance of a deal for you?