How to Avoid Unexpected Expenses After Mergers & Acquisitions

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Due diligence and post-acquisition review can be chaotic. Your team could be facing hundreds - or thousands - of contracts that they need to go through in just a couple of weeks.

With so much to do in so little time, it's easy to miss critical issues in some of the contracts.

But even one of those issues could end up costing your business millions of dollars in unexpected expenses down the line.

How do you avoid the chaos and minimize the risks while doing a proper review? Watch today's video to find out:

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Video Transcript

It seems like every day we’re hearing about a new merger between two entities or one corporation acquiring another.

As a Canadian, I’d never thought I’d see the day when Tim Horton’s would merge with another fast food entity, especially Burger King.

King Horton’s or Burger Tim’s? What do I call them?

Or that Tata Corporation in India would acquire the venerable British car maker Jaguar. How do I react to a Tata S-Type rolling off the assembly line?

And we don’t even hear about the thousands of other mergers and acquisitions that take place every year.

We also don’t hear about the tremendous amount of planning, due diligence, and negotiations that must take place for a successful merger or acquisition, or the disastrous aftermath when they don’t.

As a contracts negotiator, I’m sometimes asked to assist clients in the due diligence or the M&A negotiations phase.

However, most of the time I’m brought in when the deal has been finalized and the parties are in the post-acquisition phase - or what I like to call the "panic phase".

Because the morning after, when the ink’s dried and the two parties roll up their sleeves to get to work, a third party shows up: the supplier.

And they’re usually waving around a contract with one party that says it can’t be assigned to the other party without their consent. And they're there to provide their consent… for a small fortune.

This isn’t to imply that organizations don’t conduct a thorough due diligence on the assignability of contracts. It’s just that most organizations don’t have a good handle on where their contracts are, or what they say.

Sometimes, one side will dump a pile of PDF contracts on the table for the other side and then give them a small window to conduct their due diligence.

Other times, they’ll only provide a subset of agreements and then negotiate a transition period post-acquisition. During the transition period, both sides will work together to find the contracts and execute assignments or renegotiate with suppliers as needed.

However, there are a couple of ways to engage suppliers and mitigate risk:

When you’re involved in the due diligence phase, you should always take the time to conduct a thorough analysis of the other side's supplier agreements.

If the negotiation window is short, prioritize the most important or customer-facing aspects of the business that's being acquired and then focus on a review of just those supplier agreements that impact that part of the business.

Everything else can be given a risk factor that’s reflected in the cost of the acquisition.

When you’re in post-acquisition, take a similar approach. Prioritize the suppliers that could have the most critical impact on the business and then create a risk profile.

Then, based on a review of the existing contract and whether or not it’s assignable, create your negotiating strategy accordingly.

There’s also a third option. You can engage the suppliers during the M&A negotiations.

Depending on the criticality of the supplier, it’s sometimes better to get them under an NDA and ask for their input on how to transition from one entity to another.

Most suppliers want long-term relationships and will work with their clients to ensure a continued revenue stream.

By working closely with suppliers and strategic partners, organizations can greatly increase their chances of a successful merger or acquisition.

So that’s it, the 7 Skills that can make you an Elite Negotiator:

  1. Wearing Different Hats
  2. Getting to the back table in a 2 table negotiation
  3. Mastering the waiting game
  4. Knowing when to lead and when to follow
  5. Controlling your emotions...and theirs
  6. Understanding BATNA
  7. Planning, planning and more planning

As always, I'd love to hear your feedback on these videos. Did you get something out of it? Are there any areas that it could be improved?

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