often quarterly profits . This contract provision is called an earnout . Mark C . Lee , a partner at Rimon Law who ’ s based in Sacramento , says that in more than half the deals he ’ s been involved in on the sales side , the sellers don ’ t make their earnouts .
Real-world disasters abound . BankBoston ’ s 1998 acquisition of investment bank Robertson Stephens failed in 2002 . The Chrysler and Daimler-Benz merger dissolved in 2007 .
AOL and Time Warner disbanded in 2009 . Bust-ups have many triggers : Purchased companies don ’ t perform as projected , company cultures clash , customers or employees flee after the deal closes . “ The landscape is littered with those ,” says Curt Rocca , managing partner at DCA Partners , a Roseville-based boutique investment bank specializing in M & A advisory services .
The right way
On the flip side , mergers and acquisitions are a great tool for buyers to expand and for sellers to get working capital or exit to retirement . Bay Areabased Bank of Marin ’ s acquisition of American River Bank last August helped Bank of Marin enter a new market and offer their existing customers new products , says Marin president and CEO Tim Myers .
For sellers , one of the first steps is figuring out what you ’ re after , Morash says . It ’ s not always about retirement — some owners want an infusion of cash by a private equity firm to liquidate debt or get more capital to grow . Others are looking to merge with another company to cut overhead and fuse complementary assets . At this early stage , some companies hire a business consultant to help them define the market opportunities .
The due diligence part of the transaction — such as the buyer ’ s review of contracts , finances , accounting and governance records — may be the most time consuming . So one of the first steps sellers should take is to get with their CPA and tax advisor to make sure there are no hidden landmines
that have to be disclosed or dealt with , Rocca says . So important is the due diligence phase that he suggests sellers hire an M & A advisor to put the company through a dry run of the process before an actual buyer gets involved .
What gets less attention is that due diligence goes in both directions . Lee says sellers need to ask for documentation that the buyer has the cash to pay for the sale or a loan commitment
letter if they ’ re relying on borrowed money . “ Most sellers are only thinking about providing a ton of information to the buyer . They ’ re not really thinking about their side of the ledger ,” he says . He ’ s seen sellers get strung along while the buyers get their finances together .
Equally important , sellers need to assemble a team to run the business while the owner is tied up in the transaction , says Jackson . A sale often
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