I’m sure you’ve heard it takes about three years to get your business ready for sale – I agree with that – but, have you considered what you need to get done before you deliver your first LOI (Letter of Intent)?

Well, let me offer you my thoughts on getting ready for M&A:

1. Look Inward First: Yes, really. Take a cold hard look at your business and senior management, including you and your CFO. Is your business successful, does it have a substantial net worth? Is your potential M&A internal team qualified to handle an acquisition? If not, fill the gaps before going forward.

2. What’s the Goal of Buying? why do you want to buy another business instead of doing it organically?  Acquisitions have significant risks too. But why do you want to buy another business – to get bigger? Is that all? Are there strategic goals? To acquire technology? To boost market share? To obtain key executives
or operating staff? Write down your goals and then apply them to your acquisition plan.

3. What’s the Target? Size, sector, structure. The structure of a deal is a large determinant of the size of the deal you can do. Sector is obvious – but sometimes store fixture corporations buy condos in Florida. Don’t. Stick to your knitting, what you know how to do, at least for your first deal.

4. Assemble Your Outside Team Early: You will need deal-savvy financial, tax and legal advice – not dabblers or generalists. Choose your financial and tax advisers firstly because they can help you with the above three aspects. Qualified M&A legal counsel can be invited to your party after you’ve addressed nos. 1.2 and 3, above. Hire specialists, as most deals are not slam dunks.

5. Research, Dig, Ask: The biggest single risk of buying another business is discovering bad stuff after closing the deal. Nasty surprises can cost you more than the deal value, more than your net worth. HR, human rights, product liability claims, latent tax issues, HST arrears, unsolvable governance issues, environmental problems, regulatory entanglements, and so on. Before blasting out that LOI, research the target and its owner(s) and senior management. You need to know everything about the target. Everything. No question or enquiry is inappropriate. Do all you can do from the outside of the target – credit ratings, customer reviews, employee comments on Indeed, public office searches for secured debt and litigation claims.

6. Obey Red Flags! If you see any red flags, pay attention to them. Resolve them or at least note them for later discussion with the target’s owner. What are red flags? At this stage, the information you can get from the outside is limited, but this principle applies to the due diligence review process.

I could go on and on, as M&A has many facets, but I wanted to highlight what I believe are the six key long term planning items for private M&A. I hope you find it useful and that this small piece causes you to ask more questions.