MERGERS AND ACQUISITIONS. An acquisition is, above all, a matter of numbers. Revenues, debt, production costs, taxation, and financial projections are key metrics. However, Pierre Shea, founder of the consulting firm Aztec Group, believes that the strategic and commercial aspects of a transaction are too often overlooked.
“Sometimes I’m called in after the acquisition. When I do, I find a lot of mistakes and it’s never the fault of the lender, the tax advisor, or the lawyer,” he says. “Due diligence isn’t just about numbers and rules. You have to dig deeper by talking to employees, suppliers, and customers.”
Pierre Shea believes that this upstream work by the acquirer is regularly lacking. “Whether due to a lack of time or a rush to close the deal, there’s a lack of perspective,” he adds. “Some come to regret their acquisitions because the preliminary due diligence wasn’t done.”
He believes it’s essential to thoroughly assess the industry in which one is investing while analyzing the products and services developed by the target company. “For example, I have a client who wanted to acquire an SME that invented a fantastic product,” he says “However, it was intended for an industry where margins are small. It was better than a competing products, but much more expensive. So it’s great product, but not sellable.”
To determine whether a target company aligns with the acquirer’s values and short and long-term goals, Pierre Shea doesn’t hesitate to attend conferences and trade shows to speak with competitors and suppliers to learn more.
“We want to know what we’re buying,” he says. “Does the company have a bad reputation? Does it treat suppliers with as much respect as it does its customers? Is it there when problems arise? To investigate, I attend events incognito. It’s essential to seek out external sources.”
As part of his due diligence, for example, he discovered that a company they were considering acquiring derived 60% of its revenue from a client with whom relations were strained. The risk was therefore too great, and the acquisition never took place. In another case, he recommended a “rebranding” after learning that the former owner had a bad reputation.
The consultant also suggests surveying employees, if possible. “This is particularly important in the case of a small business,” he believes. “It’s very beneficial to see if they’re happy working with the seller. That reveals a lot. Plus, it helps prepare a successful integration plan.”
Louise Langevin, Vice President of Growth Capital and Business Transfers for Quebec at the BDC, also points out that the workforce is often at the heart of an acquisition. It is therefore essential to get to know it. “What we’re also buying is a corporate culture.” For a larger organization, Pierre Shea suggests speaking with members of management. “This is part of the due diligence process,” he continues. “It helps you better understand the company, but also see if the integration will go smoothly. Are they open to change? What areas need improvement?”
In his view, all these steps are “worth their weight in gold” during the integration process, which is a crucial step in a successful acquisition.
Especially in today’s market, business owners need to prepare before selling their business.
“Your company needs to be in order, especially the financial data,” says Pierre Shea. “You need to be prepared for all the questions that will be asked to justify the asking price. You also need to determine your expectations: Do you want all the money right away? Do you want to assit the buyer during the transition? Do you want to remain a minority shareholder or become a consultant for the company?”
When dealing with investment funds or companies well-versed in mergers and acquisitions, an entrepreneur sometimes finds themselves at a disadvantage when they want to sell their “baby.”
“Generally, they only sell once in their lifetime,” notes Étienne Brassard, a business law partner at Lavery. “So it’s important to have the right support.” Often, the seller is poorly advised because their consultants aren’t familiar with mergers and acquisitions. Sometimes, they hire them too late, which creates friction, because issues that should have been resolved much earlier in the process lead to frustrations during negotiations.” He recommends preparing well in advance to cover all angles and secure the best possible value for the seller. For example, by enlisting the help of intellectual property specialists, which is crucial for technology companies.
“The sooner, the better,” says Étienne Brassard.
Whether you’re the seller or the buyer, a transaction requires a lot of time, money, and energy, a neglected variable that experts say is often overlooked. They note that it’s also important to set aside some of that energy for the transition period after the agreement is signed.
