Top 10 Tips for a Successful Corporate Acquisition (by Singapore M&A Lawyer)
- In every corporate acquisition, there may be many obstacles to successful integration. What are the best ways to minimize the risk of failure and maximize the opportunity to succeed?
- Our top 10 tips for a successful acquisition are as follows:
- You should engage the best advisors -- as soon as possible (ie, as early as possible).
- They will help you do proper:
- strategic & business due diligence
- financial due diligence
- legal due diligence
- Engaging your advisors early will enable you to avoid fundamental and structural mistakes in your approach to the acquisition.
- In all your analysis (eg, likely economies of scale, expected client base combination, anticipated cost savings, planned branch reduction, etc.), do NOT assume perfection.
- Recognize that all post-completion integration will inevitably face resistance (from inside as well as from outside), friction, reaction from competitors, etc.
- When you do your computations, build in a margin of safety.
- For eg, be conservative when computing anticipated cost savings by targeting lower than what you think can be achieved.
- Do NOT adopt a competitive mindset such as:
- "I must beat the competition and acquire this company before they do."
- Do NOT think that for some reason or other, you MUST acquire this company at any price or your existing business will be wiped out. This is highly unlikely to ever be the case.
- Remember
- It is always possible to over bid.
- You should NEVER over bid.
- You should compute the true value of the target company before even contacting the target company.
- Your initial offer should be below the true value.
- Your final offer should NEVER exceed the true value of the target company.
- Do not think that in the course of negotiations, you suddenly discovered something that made the target company worth more than what you had earlier computed. This, too, is almost never the case.
- For an example, click here and here.
- We strongly recommend our clients provide in the Letter of Intent:
- sufficient time for due diligence; and
- full access to the target company's records to perform said due diligence.
- The time for due diligence will often range from 30 to 90 days.
- By the end of this period, you and your team of advisors will have to decide whether or not to enter into a binding agreement to acquire the target company.
- This is the opportunity for you and your team of advisors to check and confirm:
- whether the synergies with the target company exists or not.
- whether the DIS-synergies (factors that cause the combined entity to be less effective or less valuable) exists or not.
- You and your team should also check and confirm whether the quality of the target company's earnings (and other financial indices) are as told to you:
- has it been consistent?
- for how long?
- has it been growing or slowing?
- are projections reasonable?
- Here, the obligations and liabilities of the target company should be meticulously identified.
- Other factors that can adversely or favourably affect the target company should also be identified.
- For eg, does the target company (or new entity) require a licence in order to operate?
- It is vital to ensure that ALL necessary licences are obtained BEFORE paying.
- Now that you have acquired the target company, the follow through is crucial in order to reap the full benefits of the acquisition.
- For this, you must assign your best people and set aside the necessary time and resources to make the post-completion integration a success.
If you have any questions or are thinking of acquiring a company or business, please feel free to call Lam & Co. at 6535 1800.
