M&A transactions (mergers and acquisitions) are in Candido Martins’ DNA. Throughout our almost 13 years of history, we experienced more than 300 transactions with sellers and buyers. The journey resulted in many lessons, a lot of learning and sweat, new friendships gained, and old ones recovered as well as countless successful stories alongside our clients.
For many sellers, however, these successful stories could have resulted in a few additional pages of happiness and satisfaction if some actions had been taken by such sellers when the idea of preparing their business for sale came up or when conversations with potential buyers began to heat up.
It is very common to see assets being undervalued or good financial opportunities being left “on the table” due to the simple lack of planning and additional care with the most valuable asset of those sellers who, in most cases, dedicated their entire lives to that business.
Unfortunately – and sometimes, even with express recommendation of advisors´ involved in the transaction –, some sellers opt for the “homemade solution” for M&A preparation: internally carrying out analysis, correcting processes or taking administrative measures (which can have significant tax impacts), preparing documents and information that will serve as a basis for pricing, negotiate the initial documents of the transaction on their own (such as confidentiality agreements, exclusivity agreements, memorandums of understanding, etc.) or using the help of consultants, lawyers and even friends unfamiliar with the real complexity of an M&A transaction.
Relying on specialized financial and legal advice before the start of the sale a company or even at the very beginning of the process will certainly bring efficiency gains, maximize values and guarantee the success of the transaction.
From a legal point of view, one of the essential previous steps is the analysis of the current corporate and tax structure of the target company in relation to its partners in order to identify potential governance improvements, implement a more efficient tax structure for the sale and fix or mitigate materialized or not yet materialized contingencies that will be identified by the potential buyer (who will try to reduce the value of the purchase price in view of the identified problems or will demand firm guarantees regarding them, and may even withhold part of the price for this purpose).
Another important measure is related to the identification of the so-called contingent assets – any assets not accounted for in the target company’s financial statements and whose materialization normally depends on taking some concrete measure before third parties (especially government authorities). A good example are tax credits whose existence and validity may depend on some administrative or judicial measure at the municipal, state or federal levels. These contingent assets have value, guarantee more money in the sellers´ pockets and must be recognized by the potential buyer – either when pricing the transaction or simply accepting that they must be reverted to the sellers at any time after the transaction when they materialize.
There are fundamental and complex analysis or measures that every seller should look attentively and understand that their potential is much better and greater than any money savings. In most of the times, if these measures are not taken, it could be too late to realize or implement them.
Our experience only reinforces the saying: no one is a prophet in his/her own country (or as a literal translation from the Portuguese language, a saint in his country does not perform miracles). It is of the utmost importance to count on specialized help and real experience in M&A for your transaction. This does not mean that the “house prophets” are left out of this process. Quite the contrary: it is essential that the specialist advisor that you will hire works alongside these people who live and breathe the company on a day-to-day basis and who have the entire history of the business rooted within them.
It is through the union of efforts, stories, experiences, and knowledge that the best result and the success of that story will be achieved.
