What is merging and acquisition?

 What is merging and acquisition?

Merging and acquisition that takes place in a business can be complicated. That’s because it is associated with intellectual property, legal, human resources, business, and financial issues. When you have a clear understanding of “
What is merging and acquisition”, you will be able to overcome the negative consequences associated with it and move through the process smoothly. Then you will be able to successfully complete the sale of a company as well.

What are merging and acquisition?

Merging and acquisition can be considered as two of the often misunderstood terms that you can find in the business world. These two terms refer to the process where two companies are joined with each other. However, there are some major differences between them.

A merging would happen when two completely separate entities join together and create a joint venture. On the other hand, acquisition refers to the process where a specific business entity is acquired by another business entity. Both these can be done in order to gain or reach the market share of a company and to create an impact on the shareholder value.

When you go ahead with merging and acquisition, you will need to keep in mind that the valuation is something negotiable. Here, the official price and valuation are two of the most important factors that you need to keep in mind. It is setting the base of the merging and acquisition deal as well. However, this value is something negotiable.

During a merger and acquisition, the company is not publicly traded. Hence, the benchmarks associated with it would not be clear immediately. On the other hand, the outcome associated with the merging and acquisition would vary based on numerous factors. Here are the most important factors that can contribute an impact on the value associated with merging and acquisition.

-          If the buyer is a financial buyer, the approach for merging and acquisition would be different from a strategic buyer.

-          Market comparison. For example, if your business is growing at a faster pace when compared to the other businesses, it is possible to sell the company at a higher price tag.

-          Projected financial growth of the company

-          Trends in the financial performance of your company for the future

-          The proprietary technology owned by your company, such as the licenses.

-          The industry of your company and how it has been performing throughout the past.

-          Financial or business related risks of the company

-          Legal risks of the company.

You should keep these factors in mind and go ahead with the merging and acquisition deal.

How to effectively prepare your company for selling?

When you decide to sell your business, you will come across the need to close the deal as soon as possible and go ahead with your next big venture. However, there’s still some work you should do before you sell the business. Here are 6 tips that you can follow when you are getting ready to sell your company. These tips can help you to go for a smooth deal and get the maximum results out of your transaction.

1.     1.  Get the help of a wealth advisor and develop a sales strategy

The expert wealth advisors can use their expertise to help you with developing a sales strategy. This will help you to maximize the emotional value as well as the sales value of your business. The wealth advisor can also help you with developing the sales strategy according to the objectives and goals that you have in your mind. On the other hand, you can get introduced to the right team, who can support you with selling your business. Make sure that you are hiring an unbiased wealth advisor, who is in a position to provide guidance to you throughout the entire process.

2. Create a tax plan

The process of selling your company can create a massive impact on taxes. If you are getting a long term gain out of your sale, you might even have to pay taxes under the federal tax rate, which is 23.8%. Moreover, you will have to pay state income taxes as well. That’s why it is important for you to do tax planning before you proceed to sell your business. Then you can avoid penalties and maximize the tax deductions. A reputed tax advisor can help you with it.

3. Think about selling your business in installments

You can follow an installment basis selling procedure to sell your business. When you go for this kind of sale, you will be collecting the payments across multiple years. This will provide the opportunity for you to figure out your gains along with time. Hence, you can easily refrain from getting into higher tax brackets.

4. Review all the financials

You should also get in touch with an accountant to review all the business financials. The accountant can help you to prepare all financial statements of the business. You should support the accountant by providing all your business-related information. Based on the financial statements, it is possible to do an analysis and figure out the financial status of the company. It is also possible to use this method to figure out all financial issues. Then you can plan how to address those issues.

5. Diversify the customer base

When you go through the business review process, you should evaluate all the customer contracts, vendor contracts, and license agreements. That’s because these contracts and agreements can create an impact on the sale. This is where you can understand whether the existing business terms would increase value for your buyer or hurt your buyer. You will need to keep an eye on all the potential issues that can fire up, such as getting a significant percentage of the sales to a couple of customers.

6. Clean up all the financials

Before you even have discussions with the buyers, you should clean up the financials, which are not directly associated with operating expenses. This is where you should take a look at the salaries or insurance you have given for family members who don’t work, vehicles, and the other similar expense accounts.

When you prepare for the sale of your business by adhering to these tips, you can go for a smooth sale and get maximum returns. In the meantime, you need to have a solid understanding of “What is merging and acquisition”. Then you will be able to act accordingly throughout the process of selling the company so that you will be able to overcome the key challenges that you have to face in the long run.