Mergers and Acquisitions Terminology

Whether it’s a first car, a first house or a first job, there is always a first.  The same holds true for mergers and acquisitions.  You will likely always remember your first M&A activity regardless of whether your company was the acquirer or the acquiree.  You might, however, remember it more fondly if you were a part of the acquirer as often job losses can occur if you were part of the aquiree company.  You will hear a number of terms tossed around that everyone in the room seems to understand.  Below are a few of the basics that are part of most M&A activities.

Acquisition of Assets– also known as an asset sale- A merger

or consolidation in which an acquirer purchases the selling firm’s assets.  The can purchase all of the assets or only a select few and are not required to accept the liabilities.

Acquisition of stock or a stock sale-A merger or consolidation in which an acquirer purchases the acquiree’s stock.  This means they purchase all of the assets and all of the liabilities

Letter of intent or Agreement in Principle–An outline of the understanding between the two companies, including the price and the major terms.

Deal Structure–The nature of the fee paid by the acquiring entity in a merger transaction. Typical deal structure may include stock, cash or other valuable.

Due Diligence–In the process of an acquisition, the acquiring firm needs to see the target firm’s internal books as well as to audit their systems, processes and salaries. The acquiring firm does an internal audit. Offers are made contingent upon the findings of the due diligence process.  Most due diligence processes go on for at least 90 days, but can last up to 6 months or more in complex situations

EBITDA–Earnings before interest, taxes, depreciation, and amortization.

Restructuring–This can be as simple as selling off an unprofitable or unwanted division or as complex as re-structuring the entire way the new entity does business and is branded.  This is especially important when there is vertical or horizontal integration required.

Synergy–When the two companies are properly integrated and functioning, an output is achieved that is greater than the output obtained when the parts function independently

Human Resources should always play and important role up front in any due diligence process, as well as in the process of the actual merger of the two entities.

HR Financial Due Diligence– assessing HR financial risks, liabilities, and plan structures of compensation, benefits, and pension plans, workforce dynamics.

Human Capital Due Diligence assessing Human Capital aspects including culture, organizational structure, performance management, and workforce development approaches

Time spent up front will ensure that there are less unpleasant or unexpected surprises as the M&A activity draws to a close.

Don’t Make the Classic “Startup Mistakes” – Part 1

startup mess

It takes a great deal of courage to take the plunge and open your own business. The startup lifestyle is a hugely rewarding one, and can be extremely lucrative if it is carried out correctly. But it’s also one of long hours, very hard work, and a lot of faith. As an entrepreneur and owner of a startup, the pressure is on you to make good decisions, as your livelihood (and the livelihood of others) quite literally depends on it.

The one thing that you want to do is avoid making the same detrimental mistakes that other startups have made in the past. The following pieces of advice will help you avoid making damaging mistakes early on in your startup’s life.

 

Make Sure Your Business Isn’t Too Niche

It is true that a niche project can be the ticket to a wildly successful business. The general thought process is that niche industries usually mean fewer competitors and a higher probability of making it big. But, the reality is that a truly good business model will always have competition. The true test is whether your product and business model will be strong enough to beat out the competition. Avoid making the mistake of starting a business with a niche so small that there is little to no possibility of long term growth.

 

Time Your Product (Or Service) Release Properly

Jonathan Wegener, founder of Timehop was quoted saying “”The biggest mistake I see is companies waiting too long to release the product.” This is absolutely true. Many founders and their founding employees get caught up in trying to release the perfect version of their product or service, and that can be hugely detrimental for their timeline. It’s important to take a step back and determine if the Minimum Viable Product has been created. If so, launch! All of the extra bells and whistles can be added on as your business moves forward; they aren’t important for your initial launch. Avoid wasting time and resources upfront; use your initial product to gain resources, a following, and investors.

 

Be sure to check back next month to see more tips to avoid the most common startup mistakes.

 


 
To see the resources for this article, see here and here.