Avoiding Buyer/Seller Mistakes

Added by Brian C. Larsen in Corporate Law, News on February 1, 2011

Peter Drucker, in Managing for the Future, once said, “Doing deals is a much more exciting way to spend your day than doing actual work.” Mergers and acquisitions are no different—buying a company can be an exciting way for a company to expand its operations, enter a new service or product arena, or obtain valuable intellectual property. A company may elect to sell a business or one of its divisions in order to change its strategic focus, obtain funding to invest in its core strength, or exit the business and cash out after several years of business.

While doing a deal certainly brings an air of excitement to both the buyer and seller, rarely does combining two organizations go smoothly. Each deal has its own strategic logic, and buyers and sellers cannot afford to approach a transaction without a specific, thought-out, and well-articulated strategy for integrating companies. Failing to prepare for the integration process may cause the transaction to fail before it even has a chance to succeed. The following are ten common buyer and seller mistakes which may cause any deal, even the perfect deal, to fail.

10 Common Buyer Mistakes:

1. Failure to plan for integration from the beginning

2. Focusing on price and not the business or integration

3. Failing to execute the post-closing integration

4. Ignoring the culture of the selling company

5. Losing perspective due to the momentum of the deal

6. Ignoring the need to gain the seller’s trust

7. Failing to understand the seller’s motives

8. Dealing with one seller at a time

9. Failing to consider regulatory aspects

10. Using “cookie-cutter” documents

10 Common Seller Mistakes:

1. Not understanding the value of your company

2. Selling on price and not value

3. Focusing on the past

4. Failing to structure the deal to reduce taxes and liabilities

5. Selecting wrong prospective buyer

6. Not clearly understanding the buyer’s motives

7. Dealing with one buyer at a time

8. Not using appropriate professional counsel

9. Not preparing a plan to walk from the sale

10. Using improper or incomplete legal documentation

When contemplating an acquisition or merger, both parties must remember that businesses are dynamic, organic, transforming entities. No two businesses are the same, no matter how similar they may seem on the outside, and each business will have its own history, culture, and identity. To overcome the inherent dangers of just “doing a deal,” both parties must plan ahead, long before the deal takes place, to avoid the pitfalls and mistakes made during the rush and frenzy of a deal.

At Hawley Troxell, we have learned through experience that both buyers and sellers cannot afford to approach merger and acquisition deals imprudently. We have worked on hundreds of successful mergers and acquisitions, in Idaho and throughout the United States, counseling and advising companies on all facets of the acquisition process. Our team welcomes the opportunity to work with you on your next deal. Please contact us at 208.344.6000 or corporate@hawleytroxell.com with questions or to arrange an appointment to discuss any issues relating to mergers and acquisitions.