Founders often run into similar questions and curiosities. Below is a log of frequently asked questions addressed by our lawyers, many of whom have been in your shoes.
- Who are the key members of an M&A deal team?
A strong deal team of both company representatives and external advisors is critical to help prepare for, negotiate and execute a successful M&A exit. The team often includes the following individuals with knowledge of the company and its business, the wherewithal to analyze and evaluate deal terms, and the power to make significant decisions: the CEO, the board of directors, other key employees, investment bankers, lawyers, accountants, and other consultants and specialists. For more on M&A deal teams see 3 Key Steps to Prepare for an M&A Exit.
- How can companies expedite the M&A process?
In connection with an M&A exit, potential buyers will want to conduct comprehensive due diligence in order to take a close look at the company. In order to expedite the due diligence process and help build the potential buyer’s confidence in the investment, companies can conduct some pre-M&A exit house-cleaning, which may address corporate governance, the cap table, permits and filings, financial statements, taxes, intellectual property, employees/consultants, and lien and litigation searches. For more on expediting the M&A process see 3 Key Steps to Prepare for an M&A Exit.
- How can a company protect its confidential information in connection with a sale?
A company should enter into a non-disclosure agreement (NDA) with the potential buyers in order to secure the company’s confidential information during a sale process. However, the NDAs companies use for day-to-day purposes are typically insufficient for a potential sale. In particular, a company should confirm that an NDA contains the following terms before commencing the sale process:
- Permitted disclosure
- Treatment of confidential information
For more on NDAs during a sale process see How to Protect Confidential Information in Connection With a Sale.
- What are the primary objectives of an IPO due diligence review?
There are two primary objectives to an IPO due diligence review. The first objective is to aid the company, its underwriters and their respective counsel in drafting the registration statement and prospectus by: 1) providing information which securities law requires be disclosed or that may be of importance to investors; 2) verifying the accuracy of such information; and 3) minimizing potential liability (or criminal sanctions) for the offering participants in case of material misstatements or omissions in the offering documents. The second objective is to identify any issues the company needs to address, including, for example, any necessary changes to ownership structures, shareholder agreements, employment arrangements and the like. For more on IPO due diligence reviews see How to Prepare for IPO Due Diligence.
- When is IPO due diligence conducted?
Companies conduct the bulk of the due diligence work prior to the first confidential submission or filing of the registration statement, and updates follow through the closing of the IPO. Typically, the most labor-intensive part of the due diligence process for company management is collecting and assembling the relevant materials in response to the due diligence request list and back-up requests. In order to streamline this process, a company often will make many of these materials available to the project team in an electronic data room. For more on IPO due diligence preparation see How to Prepare for IPO Due Diligence.
- Why does a company consider commencing an IPO?
There are a number of good reasons for a company to consider an IPO. Public companies and their shareholders can:
- Monetize an equity interest in the company at the rich price-to-earnings multiples that are typically available only in the public markets
- Cash-in a portion of the owner’s or founder’s equity without giving up control completely
- Access public equity markets for future capital raising
- Provide key employees and directors with an opportunity to share in the upside of the enterprise through stock-based compensation, thereby improving recruitment
- Issue public equity either directly to the sellers or to the public to raise the funds for a cash purchase
For more on reasons to commence an IPO see What You Should Know Going into the IPO Market.
- How long does the IPO process generally take?
The IPO process generally spans many months and is often broken down into the pre-filing period, the pre-effective publicity period and the post-effective period. For a general timeline associated with an IPO for an emerging growth company see Consider Going Public.
- What is an acqui-hire?
An acqui-hire (also known as an acquihire or acq-hire) is when one company acquires another for the primary purpose of obtaining access to the acquired company’s key employees. From a legal perspective, the transaction is still an acquisition and can be structured in the usual ways as a stock purchase, an asset purchase or a merger. Because the most valuable part of an acqui-hire transaction is the key employees, the terms of employment are likely to be a main focus of the negotiations. For more on acqui-hires see What is an Acqui-Hire.