SPECIAL ADVERTISING SECTION
MERGERS & ACQUISITIONS Q&A
While a merger is a legal consolidation of two companies, an acquisition occurs when one company takes over another. Although an acquisition may be seen as “hostile,” as when one competitor takes over another, there can be benefits to both parties in combining their businesses.
A merger or an acquisition can expand a company’s market reach, adding new locations, products, and/or services. Combining companies can add staff with specialized expertise. There may be shared resources, and increased marketing and distribution efficiencies. There may also be tax benefits. The bottom line is to improve profitability or reduce risk.
As with any legal or financial transaction, you need to be confident that the deal is structured in your best interests, whether you’re on the buying or selling side. This is where having experienced advisors can be invaluable in guiding you through the process.
Advisors can assist you in analyzing reports and performing the required due diligence. They can help you with the required filings, and understanding the laws and regulations that must be met, and the financing to consider, among other issues. Finally, they can help you negotiate transactions and establish terms that are amenable to both parties.
Q: You’re planning to merge or acquire a business, and the new partnership will include many executive staff members of the acquired company. While the financial due diligence has been extensive, do you know all you need to know about your incoming employees?
A: Due diligence for a merger or acquisition requires much more than studying the financials. It’s important that prospective buyers know everything they can about the business and its employees. During negotiations or routine due diligence, details such as the following can be missed:
• Criminal history
• Current litigation
• Involvement in fraud
• A history of financial duress — bankruptcy filings, unpaid tax liens/judgments, poor payment history of trade accounts
• Derogatory social media postings
In most cases, the executives will bring many benefits to the table. In some instances, though, they can bring liabilities. Be sure to protect yourself and conduct the proper due diligence on all aspects of the business.
About the Author
Bill Kowalski (pictured below) is a principal of Rehmann and the director of operations for Rehmann Corporate Investigative Services. Kowalski manages complex fraud investigations for public and private sector entities. He also performs fraud risk assessments throughout Michigan, helping agencies and corporations identify, eliminate, and prosecute fraud. Contact him today at firstname.lastname@example.org.
Phil Bahr, CPA, CGMA and Steve Maltzman, CPA, CGMA | Regional Managing Principals
Address: 1500 W Big Beaver, Troy MI, 48084
Q: After I sell my company, what liabilities could I still be responsible for?
A: T hat depends o n a n umber o f f actors, including the form of the transaction (asset sale, stock sale, merger) and the terms and conditions that get negotiated. Most sophisticated buyers in M&A transactions will insist that pre-closing liabilities, known and unknown, remain the responsibility of the selling company and/or certain owners of that company. These liabilities can be significant, but there are methods to mitigate the risks. Counsel will advise the seller to employ certain strategies, including:
• Limiting the buyer’s right to indemnification through the use of “caps” and “baskets”
• Limiting the personal liability of owners
• Limiting the scope of buyer’s rights to certain kinds of claims (i.e., environmental, tax)
• Restricting the buyer’s right to automatically set off claimed amounts against promissory note payments Engaging counsel early in the process is the best way to reduce post-closing liabilities.
Kevin DiDio, Corporate Attorney
Business and Corporate Services, Mergers and Acquisitions, Startups and Emerging Companies
Address: 39500 High Pointe Boulevard, Suite 350, Novi, MI 48375
iMiH Group, LLC
Q: How important are human capital management and information technology in M & A?
A: Human capital management core business processes — like how employee data is entered, captured, and managed — can have significant adverse effects if not done properly. Having a blueprint of how the workforce, compensation, tax and payroll liabilities, deferred savings accounts, and benefits are to be integrated is vital to a successful merger.
Furthermore, supporting applications should be thoroughly reviewed. Often they are outdated or noncompliant, putting the organization at risk for tax and legal ramifications, business interruptions, and unplanned costs. Likewise, appropriate due diligence of IT assets will ensure key applications and systems are evaluated, operational, and reviewed for ease of transferring ownership or relicensing. Please contact us for a free consultation.
iMiH Group, LLC
Brendan Moore, Senior Partner
Business Advisory and Consulting Services for Human Capital Management and Information Technology
Address: PO Box 7088, Novi, MI 48376
Professional Affiliations: Association for Corporate Growth – Sponsor, Turnaround Management Association, American Payroll Association, Detroit Regional Chamber, The M&A Advisor