Here are five M&A myths that can get you in trouble. In a Divestopedia article written by Tammie Miller titled, Crazy M&A Myths You Need To Stop Believing Now, Miller explores these myths. CEO’s believe many of these myths, but they have no basis in reality.
Negotiating is over once you sign the Letter Of Intent. Although the LOI is important, it is by no means the end of the negotiations. Until there is a purchasing agreement in place, the negotiations are not completed. Many things can go wrong during the due diligence process.
Another myth to be aware of is that you don’t have to take a company’s debt as part of the purchase price. Many brokers recommend that buyers don’t take seller paper.
This myth is a particularly dangerous one according to Miller. It is simply not true that everyone who makes an offer has the money to follow through. Sometimes individuals will make offers without securing the money to actually buy the business.
Another myth that has no foundation in reality is the notion that sellers don’t need a deal team in order to sell their business. While it is possible to sell your business without assistance, the odds are good that doing so will come at a price. Those working with an investment banker can expect, on average, 20% more transaction value, according to Miller.
There are other risks in not having a deal team in place. A business broker can handle many of the time-consuming aspects of selling a business. This way you can keep running your business. Business owners can get stretched too thin while trying to both run and sell their business. This can ultimately harm its value.
The final myth is that you have to sell your entire business. Most buyers will want to buy 100% of a business, however, a minority ownership position is still an option. Don’t assume that selling your business is an “all or nothing” situation.
Business brokers can help you avoid these myths. It is important to work with business brokers when selling or buying a business. EBIT Associates can help you sell or buy a business and avoid costly mistakes.