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Do Your Research Before Merging Your Company

SA Roofing Mergers and Acquisitions
August 5, 2022 at 9:00 a.m.

RCS Influencer and Vice President of SA Roofing, Brandon Smith says both merging parties should have a common and legal understanding. 

Before my time in the roofing industry, I owned several companies in the private security sphere that dealt with physical security and legal process and they were eventually acquired by other companies. I have specific experience in this area and a handful of lessons learned for better or worse from the perspective of a company concerned with the legal process but also from the perspective of being the owner who has sold companies. 

The first thing I want to address about mergers and acquisitions is to not believe everything you read on the internet. You can do your due diligence through internet research as a starting place but there will be a bunch of different answers from everyone and their own reasoning behind each one. In my experience, everything is going to be highly dependent on the specifics of the transaction, the health of the company that is being acquired and the health of the company that is doing the acquiring. Those two pieces might not fit together as easily as it may seem online.   

You also can’t put too much stake in what the internet may say about multiples. Your average multiple within your industry is going to vary widely based on what your company specifically does, the area you are in and how the competing companies in the area are doing. It is very similar to the real estate market regarding pulling the correct comps for a given appraisal. The internet can give you a very general idea of what an acquisition of a specific company might look like but for the most part, you aren’t going to know that until you get into the formal process and LOI (letter of intent). 

Secondly, it is imperative that both parties have legal representation with experience specifically in business acquisitions and mergers. You should also have a tax attorney involved throughout the whole process to review implications for both companies and stakeholders. It is important for the company that is being acquired to understand that it will cost them some money to be acquired and plan accordingly.  
 
There also needs to be an outlined process and agreement of terminology that is approved and understood by all parties before the merger or acquisition begins. Normally there are some informal conversations that happen before the formal negotiations begin. The transition between the informal to the formal is marked by a LOI, or something similar, given by the company that is doing the acquiring.  At that point the formal agreed upon process begins.   

Regarding terminology, each business has its own culture and words they use that are unique even across the same industry. Make sure the words that everyone is using are standard and used to their true definition but also that it is clearly understood. For example, something as simple as bookkeeping can be based on a cash system or accrual. It can be very easy to get into the weeds about all these details so a lot of time and frustration will be saved throughout the entire process if these things are addressed upfront. 

The last point I really want to bring attention to is that the company being acquired really needs to have their books in order. That could mean conducting a third-party audit ahead of time so they can present verified books. This will help the acquisition run more smoothly and the acquiring company can feel more comfortable from the onset of the process.    

The last point is simply to not get emotionally invested in the sale or the merger. Things change very quickly and deals can fall through for a very simple reason. It's not wise to make business (or personal) decisions assuming a sale or merger will go through. On the other hand, if it is a successful acquisition or merger, try not to get emotionally attached to what the new company could look like afterward. This is also another reason to have that business and tax attorney we talked about earlier. This process is full of uncertainty and can cause a variety of emotions among your leadership team, staff and crew. The best thing you can do is stay organized and level headed while trusting the process and the mentors you have guiding you through it. 

Simply Affordable Roofing is owned and operated by Chris & Kendall Ekerson and Brandon & Nalani Smith. See their full bios here.  



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