Important considerations in M&A Transactions: What to know about your buyer

Finance

The first thing you need to understand is how the deal is being financed. There are several different ways in which your buyer will be financing their purchase and the way that this is done will have an impact on how the deal is structured. Some of the different options for financing include:

Self – Funding

Your buyer may be self-funding the purchase through their own personal capital or of the purchaser is a company then through company capital.

This is likely the most straightforward way for a buyer to fund the deal. However, it can add some potential complications. For example, in this case your buyer may not be able to afford to pay the full purchase price up front. In which case they may wish to pay some up front and defer the remaining consideration over a matter of months or potentially years.

Debt Finance

The buyer may have secured a loan from some form of financial institution in order to fund part or all of the purchase. This can add some complexity to the deal as the lender will likely be meticulous in their due diligence and will have additional requirements to ensure that they can avoid all unnecessary risk. This can prolong the sale process somewhat and if your buyer’s lender drops out then they will need to secure new funding in order to ensure that the deal can proceed.

Investor Backed

Alternatively, the buyer may be backed by an investor who will take a percentage of the share capital in the target company in exchange for an initial investment to assist with the purchase. Similarly to debt finance this can add complications as the investor will want to conduct thorough due diligence and will likely have their own specific requirements.

Advice

 As a seller you will also want to know whether your buyer is being advised by reputable firms of solicitors and accountants. This will help ensure that the legal and financial due diligence will be as streamlined and efficient as possible.

Why is your Buyer Buying?

It will be important to understand why your buyer is buying your company. They could be looking to expand their own business, by acquiring your company they may be able to take control of a larger portion of the market.

Alternatively, they may want to break into a certain market and rather than starting a competing business and putting their investment into that they may wish to get a head start by purchasing an already active company.

They might be buying the company because of you as a seller. Many buyers look to identify key personnel in a given industry and look to utilise their knowledge and experience. If this is the case then you will want to consider how you fit into their business plan and whether you wish to stay on for the foreseeable future or whether you will be looking to retire.