Mergers and acquisitions are complex business processes that require significant proper care from both sides. Actually, M&A is so complex that between 70% and 90% fail, according to the Harvard Business Review. Therefore, it is essential that founders have the right tools when talking to potential buyers so that they understand what is at stake – and minimize that risk where possible.

What does a successful deal look like?

or successful M&A transaction it is based on the internal discipline and organization developed over the company's fundraising cycles. Successful founders treat each fundraising round as an iterative exercise to prepare the company's top executives and stakeholders for the comprehensive nature of the M&A process.

Founders must balance the competing interests of running the business while also providing the necessary information for it buyer's diligence; and ultimately the transfer of knowledge management necessary for an efficient post-closing integration of the acquired business into the acquirer's organizational structure.

It is also essential to build rapport and a relationship of trust with key stakeholders in the acquirer so that the founders can rely on those relationships when negotiating critical deal issues in the later stages of the M&A process.

Connected: 7 Strategies to Master the Art of Mergers and Acquisitions

What are some of the reasons a deal will fall apart?

Several factors contribute to a failed deal: founders lose credibility with key stakeholders on the acquirer's side; key customers fail to renew their contracts; founders fail to anticipate risk allocation and indemnification issues; and investors are not aligned.

Founders lose credibility with buyers' key stakeholders

Most initial mergers and acquisitions require the founders and key executives to work with the acquirer for at least 18 months after closing or else lose significant deal consideration. If the buyer senses any potential day-to-day friction or trust/transparency issues, they will be more willing to walk away from the deal than negotiate the issues that inevitably arise during a transaction.

Major customers fail to renew contracts

The M&A process is all-encompassing, and founders who lose focus of the core business—or fail to properly delegate day-to-day oversight—risk missing out on critical revenue levers that can create overall deal value for the acquirer. If the buyer foresees problems with key customers, they can walk.

Failure to provide for risk allocation and indemnification issues

It is in a founder's best interest to anticipate any issues and prepare an explanation of the likely magnitude (or lack thereof) of downside scenarios that may arise after closing.

Therefore, it behooves founders to conduct a thorough audit of their business to identify any major red flags that may arise during care process and this could potentially create damages issues. However, if a founder is not fully prepared to explain the root of a problem early in the due diligence process, the buyer may insist on dollar-for-dollar compensation for fixing the problem, and the deal may no longer be as attractive as it was. it used to be.

Investors are offline

Not including major investors early in the M&A process, founders risk losing investor support when it comes time to seek shareholder approval for the transaction. Founders should be aware of valuation return points for investors who may have invested at different valuation points to ensure they are aware of the investor's share of the sale proceeds. The founders must also determine why this sale is the best option for the company.

Connected: How leaders can build acquisition-ready companies

Be careful when disclosing information to potential buyers

While it is important for founders to diligently prepare the right information to share with potential buyers, some of this information can be damaging if the deal falls through.

• Customer / Roadmap Forecasts: If the buyer doesn't already sell a product to your customer base, they can use your internal customer forecasts/roadmaps to help reconfigure their internal sales targets and claim this was public knowledge.
• Employee performance/reviews: Be careful about sharing too much information with Rockstar employees; if the buyer doesn't already know who they want to hire from your team before the due diligence process, it's fairly easy for them to create a very specific job description to target those employees if the deal falls through.
• Product development plans: Be especially cautious about sharing detailed product development plans until the deal is certain to close. If your buyer sells a competing product, one of the purposes of the transaction may be to eliminate you as a competitor.

How to be careful before the deal closes

Negotiate a very detailed letter of intent/term sheet

If you negotiate “big-ticket” items in advance (before due diligence and insider access requirements), there is less chance that critical information will be shared only to have the deal fall apart on a substantive issue later in the process.

Create non-downloadable or redacted versions of data room documents

If there is information that is particularly sensitive, ensure that it cannot be downloaded for the initial stage of care and consider redacting key information such as detailed figures and/or customer names. Additionally, founders may request that access be limited to specific members of the buyer's team on a need-to-know basis.

Ask for two-way information

If the founder is taking equity in the buyer as compensation for the deal, the buyer must be willing to provide the founder with information about his business. If it is not, it may be a sign that the partnership will not work and the owner should be careful about revealing too much information up front.

Connected: From Growth to Profitable Exit – Actionable Strategies While Selling Your Business

After all

There are many complexities to mergers and acquisitions. However, founders can successfully navigate these complexities with proper preparation and contingency planning.