For founders, being “deal-ready” is a pivotal aspect of M&A success. It involves meticulous preparation across various legal dimensions to ensure a smooth transition during a merger or acquisition. In order to prepare, you’ll need to do the following:
1. Review and Update Corporate Records and Cap Table:
Maintaining an up-to-date and accurate capitalization table is imperative for any company. A cap table provides a comprehensive snapshot of the company’s ownership structure, detailing the distribution of equity among founders, investors, and employees. Proper documentation of grants is crucial for ensuring equity compensation aligns with company objectives and remains compliant with regulatory requirements.
2. Confirm IP Ownership:
Intellectual property (IP) is a critical component of a company’s competitive advantage and long-term value. Proactively tracking and safeguarding IP assets with contracts and traditional methods, including patents, trademarks, copyrights, and trade secrets, not only protects the company’s innovations but also ensures a solid foundation. Companies should conduct an internal audit to identify and document all intellectual property assets. This includes ensuring proper ownership, validating the strength of existing protections, and resolving any potential legal issues. A well-prepared IP portfolio not only streamlines the due diligence process but also enhances the company’s valuation, instills confidence in potential acquirers, and minimizes the risk of post-transaction disputes.
3. Review Contracts and Ensure Compliance:
Effectively documenting contracts and ensuring compliance play pivotal roles during due diligence for mergers and acquisitions, as they directly impact the overall risk assessment and value of a company. Thorough documentation of contracts provides clarity on existing obligations, commitments, and potential liabilities, enabling acquirers to make informed decisions. It helps uncover hidden risks, such as pending litigation, unfavorable terms, or undisclosed obligations, allowing the acquiring company to assess the true financial and legal health of the company. By diligently examining contracts and ensuring compliance, companies can mitigate post-transaction risks, negotiate effectively, and make well-informed decisions that contribute to the success and sustainability of the merged or acquired entity. Ultimately, robust contract documentation and compliance assessments are indispensable components of a comprehensive due diligence process in M&A, safeguarding the interests of all parties involved.
4. Gain a Clear Understanding of Valuation:
A precise valuation provides both the acquiring and target companies with a comprehensive understanding of the financial landscape, ensuring that the transaction is fair, transparent, and aligns with strategic objectives. This process involves evaluating tangible and intangible assets, liabilities, cash flows, and potential risks, enabling stakeholders to assess the true value of the target company. A well-defined valuation not only assists in determining an appropriate purchase price but also helps in negotiating favorable terms and structuring the deal effectively. Moreover, it minimizes the risk of post-transaction disputes and enhances the likelihood of a successful integration by aligning expectations and financial realities.
5. Get Organized:
Store your files in a data room that is easy to share with your counsel and other stakeholders. Give your lawyer time to review your data room prior to giving access to other stakeholders. This not only ensures that the information is presented accurately and comprehensively but also enables proactive identification and resolution of potential legal and business concerns. An organized data room not only expedites the due diligence process but also reflects positively on the company’s professionalism and readiness for the transaction.
By reviewing corporate records, confirming IP ownership, thoroughly examining contracts, gaining a clear understanding of valuation, and ensuring meticulous organization, founders pave the way for M&A success. These proactive steps not only minimize risks and enhance the company’s valuation but also contribute to a seamless and transparent transition.
Tricia Meyer is a serial entrepreneur, business lawyer and mom of 6! Tricia is the Founder + Managing Attorney at business law firm, Meyer Law and Co-Founder at The Clever Baby. At Meyer Law, Tricia has helped thousands of companies from startups on Shark Tank to growing companies on the Inc.500 list to some of the largest, well-known companies in the world! The Clever Baby recently launched its first product Jet – a patented, innovative teether and dispenser all-in-one, and is committed to developing clever products for parents and creating magical moments for babies and kids. Tricia is passionate about entrepreneurship and has mentored thousands of companies at incubators and accelerators across the United States at 1871, TechStars, WeWork Labs, and more! Tricia regularly speaks about business and legal topics at events from coast to coast and has been featured in Inc., Entrepreneur, AmEx OPEN, and more.