2. What will be covered
Why do sellers sell?
Accounting due
Should you buy? diligence
More questions to ask
Legal due diligence
before buying
Types of deals
The Mergers and
Post-merger
Acquisitions process integration
Basic negotiation
Some important
strategies reminders
Resolving valuation
differences
3. Why do sellers sell?
Retirement
Sale of part of
Need additional company to fund
expertise to take growth
company to the next
Accessing
level accumulated wealth
Divesting a division or
Buying out a partner
product line
Paying off debts
Industry changes
Operational troubles
4. Why is it important to know why
sellers sell?
1. Knowing common reasons why sellers sell may
indicate whether a particular company is a potential
target for acquisition.
2. Seller's motivation to sell affects the potential sale
price.
3. Knowing seller's motivation may also highlight
potential issues post-merger and acquisition.
Query: As you think about your suppliers and
competitors, would any of them be motivated to sell
based on any of the common reasons for sale?
5. Should you buy?
Strengthen market
Eliminate competition
position
Enhance offering
Turnaround to make
IPO
money
Access to customer
Complementary for base
cross-selling
New capabilities and
Geographic technologies
expansion
Business
Economies of scale transformation
6. Points to ponder:
Have you previously acquired a company? In
hindsight, was it for a good reason? Why or why
not?
If you were considering to acquire a company
presently, what would be your reason for doing
so?
7. More questions to ask before buying
The previous reasons relate to corporate/business
unit strategies. In addition to those reasons, you
need to consider:
a. Is the target company the best candidate?
b. Can the deal be made at the right price?
c. Is it the best way to structure? (in terms of
shares, assets, contracts, etc)
8. The mergers and acquisitions
process
The M&A Process
c.f. Human Relations
Targeting
Flirting
Mutual non-disclosure
Dating
Negotiation
Courting
Valuation
Proposing
Term sheet/ LOI
Engagement
Due diligence
Trial period?
Agreement
Marriage
Integration
Staying married
9. Basic negotiation strategies
Know your position relative to the
Always leave room for yourself and
other the other side to step down without
losing face. Don't issue
Assess your Best Alternative to a unnecessary ultimatums unless
Negotiated Agreement (“BATNA”) you are ready to stand by it.
and that of the other side
Be aware of silent needs, interests
Assess your Worst Alternative to a and wants, of the decision-makers,
Negotiated Agreement (“WATNA”) as well as their influencers and
and that of the other side professional advisers.
Only deal with decision makers-
Be comfortable with long periods of
check for their mandate silence.
Use “if...then”
“If I concede to your request, then
would you in turn...”
Practice active listening. Listen for
the unspoken messages.
10. Resolving valuation differences
between seller and buyer
Make payments over
Use share swaps instead
time instead of of cash
immediately.
Retain the seller as a
Agree to earn-outs for consultant
seller (i.e. seller gets
Provide a bonus for the
value he wants based on
seller to remain in the
future revenues, profits,
company
etc)
Agree to value on a
future year
Undertake a partial buy-
out
11. Be aware that there are at least 2
types of due diligence
Accounting due diligence
Legal due diligence
12. Accounting due diligence
Financial/accounting info
Material commitments to key
(whether made on same staff, suppliers and
basis/principles? Statutory filings customers
done? Bank signatories and
safeguards?)
Valuation of properties and
Debts equipment
Statutory contributions and
Insurances
tax compliance (EPF, SOCSO,
Transfer pricing issues
PCB, corporate taxes, customs
and excise- laws may render
directors liable for company
liabilities, so important to make
sure in order)
13. Legal due diligence
NDAs
Compliance to laws and legal
obligations (tax, environment,
Corporate info (capitalisation, employment, conditions of
shareholding, directorship, contracts and titles)
authorisation, good standing,
structure, subsidiaries, affiliates)
Intellectual property
(ownership, registration)
Contracts and MOUs
(employees, suppliers, customers,
Pending litigation, claims and
creditors, banks, share options, contingent liabilities
powers of attorney)
Insurances (validity and
Inventory (ownership, risks) subsistence, inventory, real estate,
Real estate, machinery and machine and equipment, all risks,
others)
equipment (ownership,
encumbrances)
Regulatory requirements for
operations (licences and permits,
subsisting breaches, renewals and
conditions)
14. Common types of deals
1. Sale and Purchase Agreement – purchaser shares of target company
2. Asset Purchase Agreement – purchase assets of target company, not
shares. Liabilities not assumed.
3. Joint Venture Agreement – acquire business of target company but not
company itself nor its assets
4. Non-compete Agreement – restrain selling owners from competing with
new owners. Purchase of business with goodwill is one of three statutory
exceptions allowing a non-compete under the Contracts Act 1950
5. Non-Disclosure Agreement – prohibition against disclosure of terms of
deal
6. Employment/Service or Consulting Agreement – engage selling
owner for purposes of integration, technology transfer, extension of non-
compete or future earn-outs
15. Important clauses for shareholder
agreements
Role of each shareholder
Decision making process- by
majority, super-majority or
Representation on the board,
require consensus for certain
chairmanship and casting
decisions?
vote
Right of first refusal for
Management rights
shares
Access to documents and
Ways for shareholders to exit
accounts
Valuation of shares upon
Control of bank signatory
intended exit
Control of rights issues (can
Call and put options- may be
be used to dilute minority
used as dispute resolution
shareholders)
process
Dividend policy
16. Post-merger integration
Have an integration
External
plan in place communications
(integration of
Finance systems
systems and integration
employees)
IT integration
Ensure all
announcements are
managed
Training plan
Customer visits
17. Some important reminders
Term Sheet/ LOI is only the
Do not lose sight of who is
start of the process. Deals the decision maker of the
are not done even with the other side, and what is
Term Sheet/LOI signed. his/her motivation
Be prepared with your
Do not withold material
documents for due diligence information- there may be
process. legal repercussions
Do not just demand. Justify
Do not announce the deal
the valuation you want. before it is really done
If there are problems in your
Do not call employees,
financial statements, admit customers or suppliers of the
them. They would be seller without prior
discovered anyway. permission
18. About Us
We are a niche law practice servicing businesses
and business owners, focused on:
1. Litigation and arbitration;
2. Real estate transactions and financing;
3. Construction disputes;
4. Corporate/commercial work.
19. A final word
When in doubt, Ask@MyCounsel.com.my
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