Over the course of M&A in Practice, we have explored the legal process and many of the operational considerations involved in buying or selling a business. As the series has progressed, clients and professional contacts have raised additional questions about the broader business issues that accompany an M&A transaction.

Those questions are worth exploring because legal and business considerations are closely connected throughout the transaction process. Decisions about structure, risk, valuation, timing, and documentation often require both legal analysis and business judgment.

With that in mind, here are four practical considerations that buyers and sellers should evaluate before and during an M&A transaction.

1. Why Buy or Sell?

For a prospective buyer, the first question may be the most fundamental: Why acquire this business?

An acquisition can be an effective way to expand revenue, enter a new market, add capabilities, acquire talent, or accelerate growth. It can also be a significant investment.

That makes it important to consider the alternatives. Could the same growth be achieved organically through additional sales and marketing efforts, geographic expansion, a new product or service, or other investments? Depending on the circumstances, organic growth may represent a different cost and risk profile than acquiring an existing business.

There are situations in which acquisition is the most practical or even necessary path to growth. A business may require specialized facilities, geographic reach, technology, personnel, or other capabilities that would be difficult or costly to develop independently.

The important point is to evaluate the alternatives before committing to a transaction. There may be a better way to accomplish the underlying business objective. There may not. The analysis itself is valuable.

The same principle applies to sellers.

Selling a business is often viewed as a liquidity or monetization event, but owners should consider whether a sale is the best option for their circumstances. Would continuing to own and grow the business create greater value? Would a joint venture or strategic partnership accomplish some of the same objectives? Could a partial transaction provide liquidity while allowing the owner to retain an interest in future growth?

The right answer depends on the owner's objectives, financial circumstances, succession plans, and appetite for continued involvement. For an individual owner, retirement may be the primary consideration. For an investment group, returning capital to investors may be the driving factor.

There is no formula that provides certainty about what a business will be worth in the future. A thoughtful analysis of the alternatives, including the advantages and disadvantages of each, can help inform the decision.

2. How Do You Evaluate the Business Behind the Numbers?

Businesses are ultimately operated by people. Ownership, management, employees, systems, and institutional knowledge can all contribute significantly to the value and continuity of a company.

That creates an important diligence question: How do you evaluate the organization when access to employees and certain information may be limited during the transaction process?

Confidentiality is an important part of M&A. A seller may reasonably restrict communications with employees, customers, and other parties until the transaction reaches an appropriate stage. At the same time, buyers need to understand how the business actually operates.

There is no single answer, but documentation and business systems can provide significant insight.

Well-organized financial statements, contracts, corporate records, employee policies, customer and vendor information, and other business records can indicate that a company has established disciplined processes and controls.

Outside expertise can also provide an important perspective. Depending on the transaction, buyers and sellers may engage professionals to conduct a quality of earnings analysis, market study, operational review, valuation, or other specialized assessment.

The objective is to understand the business beyond the sales presentation and determine whether the underlying systems, financial performance, operations, and people support the value being attributed to the company.

3. What Is the Business Really Worth?

Valuation is one of the most discussed and debated aspects of any M&A transaction.

There are established methodologies for valuing a business, and an experienced valuation professional can provide valuable analysis. Depending on the circumstances, valuation may consider cash flow, earnings, assets, market transactions, industry conditions, growth prospects, and numerous other factors.

Even a well-supported valuation, however, does not necessarily produce a single definitive answer.

Ultimately, a transaction occurs when a willing buyer and willing seller agree on terms that each is prepared to accept. Market conditions, strategic value, financing, timing, competing opportunities, and the parties' individual objectives can all influence the agreed price.

For that reason, a reputable valuation expert can be an important member of the transaction team, but valuation should also be considered in the broader context of the transaction and the objectives of the parties.

4. How Much Patience Does the Process Require?

Perhaps the most consistent observation we hear from participants in M&A transactions is that the process takes longer and requires more effort than anticipated.

That should come as no surprise. A transaction involves substantial time, expense, analysis, negotiation, documentation, and coordination among numerous parties. Both sides are committing resources while facing the possibility that the transaction ultimately will not close.

There will be unexpected issues. Negotiations may take longer than expected. Diligence may uncover information that requires further analysis. Financing, regulatory matters, documentation, or other circumstances may affect the timeline.

Patience, calmness, and methodical discipline are valuable throughout the process.

So is maintaining perspective.

A transaction that does not close is certainly disappointing after the investment of time and resources. It can also provide valuable information about the business, the market, the transaction process, or the party on the other side of the table.

A Practical Perspective on M&A

There is no single formula for a successful M&A transaction. Each buyer and seller has different objectives, resources, risks, and circumstances.

The most successful participants tend to approach the process with preparation, thoughtful analysis, realistic expectations, and experienced advisors. They understand both the legal requirements and the underlying business objectives and remain disciplined as circumstances evolve.

After following the M&A process from preparation through closing and beyond, perhaps the most important lesson is that a transaction is ultimately a business decision supported by legal, financial, and operational expertise.

Good preparation matters. Good questions matter. And throughout the process, good judgment matters most.

Experienced legal guidance can help as you consider practical next steps and we welcome your questions.

Contact us today to discuss your circumstances.

The foregoing is intended to be marketing material. Information is contained in this article is for general education and knowledge. It is not designed to be and should not be substituted for legal advice. This information is not intended to create an attorney-client relationship.