Whether your startup is looking to sell or is being courted, you will need to have an understanding of available transaction advisory services.
Buying or selling a company, or pursuing an initial public offering (IPO) are huge undertakings, particularly for startups that are new to these prospects, and it helps to know where to turn when these strategic plans turn into immediate moves. Companies offering transaction advisory services vary in their definition and range of these services, so it helps to know ahead of time where to turn and what these services may or may not entail.
What Are Transaction Advisory Services?
Transaction advisory services involve the prep work, due diligence, financial planning, and corporate governance changes necessary both before and after a major transaction, such as a merger, acquisition, special purchase acquisition company (SPAC) agreement, or IPO. These are unusual, transformative events in a company’s lifecycle, so outside expertise from pros who have experience with similar companies and similar deals become important, to ensure the company is doing what it needs to do, and is prepared for the deal signing or bell ringing, in addition to the transition and changes ahead.
Advisory & Transaction Services Your Startup May Need
While it helps to be prepared and have access to transaction advisory services when the time comes, the truth is companies that embark on a major transaction rarely have a lot of time to prepare. Ideally, they would be ready if an acquisitive company came knocking on the door or they would already be operating like a publicly traded company before going IPO, but, as with most things, time and resources are limited. A team of mergers and acquisition advisory or deal advisory consultants can help companies act efficiently and cover the many bases in the following ways, depending on the type of transaction advisory services required:
Becoming More Attractive to M&A Suitors, Investors
A company shopping around for a strategic acquisition has the upper hand if this aligns with your own exit strategy. Your company’s valuation will depend on what they see once they start taking a closer look at how you operate, your market potential, your existing talent, and your executive management team. How much of a handle the company has of its own worth—your plans, your products, your scalability, your brand recognition—will go a long way to favorable negotiations and terms.
If an IPO is in your future or you are trying to raise capital, you may need to prepare by, among other things:
- Streamlining your financial operations.
- Regularly undergoing an audit of the financial statements.
- Being able to carry out repeatable, practical processes for meeting Securities and Exchange Commission reporting requirements.
Preparing for the Transaction
With expert advice and insights from finance and accounting & marketing consultants, you can make the shift to communications that match the understanding and interests of investors. Why is your company worth their time and money? How should you present your company in the language they understand? At this stage, you can clean up any inconsistencies, as it will make the due diligence process that much smoother.
If by this point your startup has not undergone an audit of the financial statements, know that the entire process usually takes up more time than expected. An auditor liaison can streamline this process, but you can still expect a lot of back and forth and questions the first time around.
Will your systems be able to keep up with the changes ahead? Pre-IPO companies need to ensure their systems have adequate internal controls and automation capabilities in order to keep up with their bigger, busier selves.
You’ll need a thorough assessment of your company’s capabilities, in addition to an expert team and loads of documentation to get you through the due diligence process of an M&A deal or as smooth an IPO as possible (there will always be issues that pop up but transaction advisory experts can keep the disruption to a minimum).
Preparing for the Transition
As much as the company will be focused on getting through the M&A, SPAC, or IPO transaction itself, there is also a need to prepare for the transition to this next version of the company. Not everyone on the team is going to want to be a part of it, and you may find that some do not have the capabilities (working for a private company is a completely different experience than working at a public company). Leadership changes may be in order. New processes and systems will be needed.
Post-IPO, there will be no time to waste as public companies are heavily scrutinized, and books must be closed on a timely and accurate basis, in accordance with GAAP. Companies need help getting accustomed to the quarterly financial reporting and SOX compliance requirement, in addition to improving forecasting capabilities so that the information shared with investors and analysts is as close to reality as possible.
Dealing With the Post-Transaction
The company is never going to be the same, whether it has been absorbed into another entity, taken on a new, talented team through an acquisition, or now has publicly traded stock and inquisitive investors. Big changes are likely to hit the culture under these new circumstances, particularly if the company is now bigger and facing an entirely new set of expectations. The need to be accountable is likely higher—if the company now has a parent to report to and promises to live up to, and if it’s now subject to SEC regulations as a public company and the scrutiny of the public. There is a rhythm to get accustomed to for when financial information needs to be shared. Experts who have gone through a similar experience can help the team get through the transitional time and be prepared for all the exciting things that lie ahead.