During the process of mergers as well as acquisitions (M&A), it is common for one-off costs to be overlooked. According to Morgan StanleyCost reduction can be used as income generation and create value in an M&A deal. It is good to have a plan to deal with costs before they occur. This is an effective way to minimize their impact on the M&A deal.
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Costs Related The Deal
There are miscellaneous costs with an M&A that build up. The more complicated the transaction, the more costs associated with completing it. Decreasing the various costs is a process of determining what is necessary and what is not.
Integration Advisory Fees
Some believe a fee for post-merger integration could easily be avoided. Others believe it is one of the most valuable costs during the process and should be embraced. If a company has never previously participated in this type of process, it could benefit from using experienced consultants. They will be able to advise on which important steps should be taken in the 12 to 24 months following the closing of an M&A deal. The only way to control these costs is to determine the true value of the advisers who are hired. Know their history and get recommendations for them from others. This will determine if the extra cost is warranted.
Legal Fees
It is possible to decrease legal fees with some proper planning. A company’s legal team may only be necessary to provide advice on specific corporate matters. Their experience and knowledge will be valuable during any M&A deal. Reducing legal fees often involves keeping as many of the legal functions as possible in-house.
Breakage Fees
This refers to the costs assessed when an M&A deal in its advanced stages falls through. It will usually involve a deposit by the selling firm. The amount of this deposit will be determined by the total selling price. The fee amount could be up to 10 percent of the deal’s purchase price. This will make it possible to avoid paying huge unnecessary costs in the unlikely event an M&A deal falls through. One way to decrease breakage fees is for the seller to show the buyer they are negotiating in good faith. They can offer to compensate the buyer for costs involved with the disruption caused by the performance of due diligence. This could include paying for the time legal counsel and management are taken away from their regular duties. This is considered to be an additional expense, but it is going to be much less than paying for an unreturned deposit.
Rebranding Costs
Unless part of the M&R deal involves the creation of different companies, a rebrand of the company being acquired will often be necessary. In some cases, it will require a rebrand of both companies involved. Rebranding both will be more expensive than rebranding one. How this is handled will depend on the unique factors involved in each deal. A good way to save money is to never ask the agency responsible for branding if it is necessary. They will always say it is necessary. An acquiring company needs to realize their brand put them in a position to make the deal and it may not be something that needs to be changed.
Technology and IT Costs
Technology is now an essential part of most deals. This will involve an important cost. A company’s IT team needs to be included in the M&A process at the beginning. It is a good idea to request a seller to provide access to their IT systems. There are unavoidable costs associated with this type of business transaction. This could include integrating data collections. It may also involve purchasing extra subscriptions on existing IT systems and more. The key to decreasing these types of costs is getting the most value for the time spent. An effective way to decrease costs in this area may be to make all necessary changes as quickly as possible.
Virtual Data Room
An important investment during any M&A deal is virtual data room software. This is an online repository of information. It is used for storing and distributing all the documents associated with an M&A deal. This software makes it possible to provide access to important secure documents for only authorized users. This can be done with a dedicated website or using secure agent applications.
All negotiations for an M&A involve various compromises. It is important to realize which party possesses more leverage during the negotiations. This is also a process where costs can be reduced. Using a data room like Firmex can make the process go easier. Everyone involved will have quick access to all important documents and more.
