Are you getting your business ready to sell or IPO? How do you plan to prepare for the disruptions to your business and your people that such a process will undoubtedly cause?
In Getting Deal Ready, we explore the speed bumps that slow down your ability to get the deal done.
Not knowing the risks in your business before the buyer uncovers them will result in longer and bumpier ride for everyone.
In a sale process, buyers will undoubtedly want to conduct a deep dive into your business – they will want to understand and assess what risks they are taking on, particularly:
- are there risks that your business is not compliant from a regulatory perspective?
- are there risks with your customer contracts or supplier contracts that could undermine the financials of your business, or could erode the value of the business that they are acquiring?
Buyers are likely to push sellers to retain material risks through indemnities (or reduce the purchase price) if it is not crystal clear whether those risks are contained, or if the risk is too high. Not anticipating the potential issues that the buyer’s due diligence may uncover could undermine your ability to execute the transaction.
RI Advisors and ME Bank are recent public examples of buyers obtaining indemnities from sellers to address known regulatory issues. Those indemnities were triggered when ASIC undertook regulatory action post completion of the transaction.
Conducting a review of your business before engaging with potential buyers allows you to make a proactive assessment of the key risks that lie within the business, give you time to quantify those risks and consider whether it is in your appetite to retain that risk (or some elements of it). Making these assessments and decisions when the M&A process is in full flight is difficult and reduces your ability to respond in a timely manner.
This is particularly relevant in industries like financial services and the emerging digital assets space where any uncertainties around regulatory compliance will have a huge impact on the buyer’s risk assessment and ultimately on whether the buyer walks away.
For more information, please contact Jo Ruitenberg.