Tagged: M&A
- This topic has 9 replies, 10 voices, and was last updated 4 days, 17 hours ago by
Vijay Tailor.
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February 9, 2024 at 7:48 pm #97235
jay
ParticipantIt seems that M&A with publicly traded companies is way more complicated than privately owned businesses. What are the common obstacles or areas to be extra mindful when conducting M&A for private company?
April 24, 2024 at 3:13 am #105453Jamie M
ParticipantI would imagine there is a higher risk of finding skeletons in the closet.
April 24, 2024 at 12:00 pm #105516Areti Stampouloglou
ParticipantI think the most important aspect where due diligence should pay much attention in a privately held target company is the exact involvement of the shareholders and relations with the company. Debtors and liabilities should be carefully checked during the due diligence phase by experts to see of there are any debts of or liabilities to the shareholders. Apart from that, a proper due diligence in all fields should take place and be more careful and scrutinising than in a pyblicly listed company as public companies tend to be more transparent.
May 10, 2024 at 6:56 pm #107667Dana Hoernke
ParticipantI think private company M&A has several unique challenges too. The biggest difference that comes to mind is lack of transparency compared to public companies. Without publicly available financial data, due diligence becomes trickier. Also, valuation can be more subjective without the market’s pricing signals.
May 17, 2024 at 6:34 pm #108762Trevor Cassaberry
ParticipantIn my experience within engineering and utility, I’ve noticed a lot of private M&A is primarily strategic instead of simply “buy low, sell high.”
For example, 1 transaction I witnessed was a PMO firm Purchasing another in an effort to become a prioritized vendor for a major utility client. The purchasing company was national but did not have a strong presence in the South East, which they made up for when they acquired a small competitor who had a framework with a major utility in the region.
Another example, A PMO firm purchased a small IT consulting agency, in an effort to hire the owner. They previous owner is now the Chief Technology Officer for the firm.
In private M&A, I’ve often seen smaller companies purchased “for parts” instead of a positive ROI
June 18, 2024 at 6:52 pm #112849Melissa Lehman
ParticipantI agreed with what has been previously stated… with private companies there are many areas of risk and in my opinion require a deep due diligence to make sure you are protecting your company from potential issues. We have seen everything from unethical money management, poor compliance and security to not understanding legal requirements. Most of what we have seen is not done with malicious intent but more of a lack of knowledge which still needs to be planned for to mitigate the risk to your organization.
July 5, 2024 at 3:12 pm #114575Jessica Lee
ParticipantHi Jay,
You’re right that M&A involving publicly traded companies often comes with additional layers of complexity, such as regulatory scrutiny and shareholder approval. However, M&A for private companies has its own set of unique challenges that require careful consideration.
One common obstacle is the lack of publicly available information. Unlike public companies, private companies don’t have the exact disclosure requirements, making it harder to gather comprehensive data during due diligence. This means you must be extra thorough in your investigation, diving deep into financial records, customer contracts, and operational details to get a clear picture of the company’s health and potential risks.
Valuation can also be tricky. Without a market price, determining the fair value of a private company requires detailed financial analysis and often the input of valuation experts. Both parties must agree on the valuation method and the assumptions used, which can sometimes lead to prolonged negotiations.
Another area to be mindful of is cultural fit. In private companies, the culture is often closely tied to the founder or current owners, and changes can significantly impact employee morale and productivity. Ensuring a smooth cultural integration is crucial to maintaining stability and achieving the desired synergies.
Legal and regulatory considerations can also pose challenges. Private companies may not have the same legal and compliance infrastructure as public companies, potentially leading to undiscovered liabilities or regulatory issues. Conducting thorough legal, and due diligence and addressing any compliance gaps early in the process is essential.
Lastly, stakeholder management is critical. Private company owners may have different priorities and emotional attachments than public company shareholders. Aligning interests and managing expectations requires careful communication and negotiation.
While private company M&A can be less public and sometimes faster, it requires a meticulous approach to due diligence, valuation, cultural integration, legal compliance, and stakeholder management.
I am looking forward to hearing others’ experiences and thoughts on this!
July 5, 2024 at 6:03 pm #114592Tim Schinke
ParticipantMy experience with private companies, especially in lower-middle market deals, the exposure comes with financial data integrity, customer concentration (in certain industries) and the role(s) of key employees including founder, management and critical individuals.
July 6, 2024 at 3:34 pm #114656Teresa Drew
ParticipantHi Jay, al the point above are excellent and I have encountered them in the M&A my company does. We are an engineering consulting firm and only do small, private M&As. We have learned many of the lessons taught here the hard way.
For successful close of a private M&A, valuation is key, as is the true financial health. Many of our deals have not closed due to lack of agreement on these two items. Many small (10 – 20 people) company owners do not have the business experience to adequately understand the valuation the market puts on their business. Their view reflect their personal commitment, not the greater market, and the discussions will get emotionally charged. Financial health is another. These are not companies with huge debt loads as banks don’t carry small firms for long. But a positive balance sheet at the end of the year does not mean the company is healthy.
A greater challenge come post close, as private firms coming into much larger firms, or into public firm, WILL experience culture shack, regardless of how well you prepare and change manage. The cultural integration is always the biggest challenge and need robust discussion and agreement on the integration plan, then it needs to be demonstrated by your AND especially the the NewCo leadership to be effective.
July 11, 2024 at 3:36 pm #115261Vijay Tailor
ParticipantIn my view, in private companies there are few heavy weights who hold key information which is a challenge plus there is no pressure of reporting it to market or governing authorities hence sticking to timeline can be another challenge.
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