When the going gets tough we the Turks get going
It is no coincidence that the Turkish National Football Team in Euro 2008 and The Turkish National Basketball Team in World Cup 2014 were both dubbed the comeback kings. In general the Turkish dynamic is to be more productive and disciplined in tight situations rather than the relaxed times. However, in an M&A process, a target company should start getting its kitchen in order long before the guests arrive.
One Monday morning you wake up and go to work as the founder and the CEO of the company to which you have dedicated almost all your life only to find in your inbox an email which states the interest of a bigger company to acquire your company or to be partners to manage it together. You spend an almost a week to digest the idea of letting go or sharing the management of your company which at first creates short term physical problems such as stomach ache and nausea. The second week goes by and you are no longer disturbed about the idea but do not know how to answer it without losing any pride. And after the third week you decide to write a positive answer back to the interested potential acquirer thinking that you are finally over with the hardest part of this M&A process. You are unfortunately terribly wrong; this was only the tip of the iceberg.
When a potential acquirer is interested in your company, its not just going to look at your past financials to see if there is any inherent risk. They are also going to be very interested in understanding your trading results and trend patterns your company experienced in the past. In general, mid cap companies have difficulty in presenting a part of their historic data that would be the greatest ingredient for the valuation and the strategic decision of the acquirer. Such data is not usually in the general ledger and should be delivered with timely preparation. A few examples of such information are;
- Sales breakdowns by products, business lines and customers
- Profitability by products, business lines and customers
- Adjustment of non-operating related assets
- Adjustment of non-operating related expenses
- Classification of expenses under the correct general ledger accounts for accurate ratio analysis
- Accurate turnover days per customers and vendors
- Inventory counts to ensure the actual inventory values at period-ends which also confirms an important part of the cost of goods sold
Issues mentioned above are good examples of data that you just can not decide to prepare right before a financial due diligence, they usually have to be kept under a structured system and in their relevant fiscal periods. Besides such issues, you as the owner and most senior official of the company should analyze and identify the parts of your business that would be attributed to most value and have your chart of accounts structured in such a way that such value would be visible to a trained set of eyes.
It is never too late to plan for a future that you think may not even come true. Preparing your company for an acquisition that may occur 3 years from now would also serve the core essence of being more corporate as a mid cap family owned business. Do not wait like our national football team to score in added time, because the referee may not always decide that there will be added minutes to the game.
Ömer Tunabas
