Unique Challenges Can Arise in Private M&A Deals: Panelists

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By Michael Greene

Sept. 20 — Mergers and acquisition deals involving private companies can present unique challenges, panelists at a National Association of Corporate Directors conference said Sept. 19.

It is important to keep the due diligence process fact-based, said Brian Pitera, a principal at Grant Thornton LLP. Whether on the buy or sell side, “emotions can get high,” especially when a private company is involved, he said.

Sellers in closely held entities can have an emotional attachment to the company and worry about what will happen to it after the sale, Pitera said. On the other side of the transaction, buyers anxious to get a deal done can miss problems at the target company.

Less Information Available

While most M&A issues are similar for private and publicly held companies, private companies may have less sophisticated systems and less readily available information, which can make the process a little slower, said Jonathan Foster, managing director at private equity management services firm Current Capital LLC who also serves as a board member on several companies, including Lear Corp. and Berry Plastics Group Inc. Because of the lack of information, buyers may want to be even more careful during the due diligence process, he said.

Unlike public companies, private companies don't have to disclose their risk factors, so legal advisers and investment bankers can be a key source of information, D'Anne Hurd, board chair at Monzite Corp., said. Hurd added that getting together a team of advisers earlier on in the process may be helpful.

Sell-Side Concerns

More generally, the panelists discussed factors that sellers should watch out for in M&A deals involving public or private companies.

Hurd said that sellers should review existing contracts to see if the agreements require that third parties be notified of, or must consent to, the sale. Such contracts can cause delays or even prevent the deal from going through, she said.

Hurd also said that in cash deals, sellers should ensure that the buyer has, can raise, or knows where it is getting, the cash.

Before the sale process begins, it is critical to make sure that everything is in order, Foster said. “You really can't start over again and so being well prepared up front is important.”

Sellers also must be able to answer basic questions about themselves, or “things can go sideways pretty quickly,” Foster added. While that may sound obvious, sellers often don't have that information at hand, he said.

Pitera recommended that target companies be aware of their blind spots. This can help a seller defend its position on valuation and in some situations, result in a higher valuation, he said.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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