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Mergers and acquisitions are complex processes that require a large amount of planning and due diligence to ensure success. CT Client Relationship Manager Mike Malkowski discusses how to keep the stress at a minimum and the biggest mistakes companies make during the process, as well as the 2017 M&A outlook.
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Greg: Hi I’m Greg Corombos and our guest this week is Mike Malkowski, Client Relationship Manager at CT Corporation. Our topic for this week is How To Accurately Assess the Success of Your Merger, a post-merger cleanup evaluation, if you will. Mike thanks very much for being with us.
Mike: Thanks for having me Greg. .
Greg: Very simply put what is the best way to evaluate the success of your merger?
Mike: Greg, just as you said it’s very simple. You only need to make sure you have proper communication, roles and responsibilities properly dedicated. Mergers are big scary things that often times are over complicated. It’s focusing on the basics of who is doing what and when, making sure you understand all the risks associated with an actual merger. Once you understand what is actually out in front of you and what needs to be handled, it makes the task much less daunting.
Greg: On the flip side what are some examples of an unsuccessful merger?
Mike: I think it’s pretty much the opposite of everything I just said. It’s when people aren’t understanding who is doing what and when or what they’re even supposed to be doing. I can’t tell you how many times I’ve heard from clients that are completely unaware there are some sort of statutory requirement or they had to file this or pay this fee or that they should be coordinating with this side or this company or this government agency. It’s really just making sure you understand what is out there so you can properly tackle those items. When that doesn’t happen that’s when you start to see the risk come up from the basement and show its ugly head.
Greg: Are those the most common mistakes then? Not necessarily understanding all the details involved, or are there other mistakes you see a lot of post merger?
Mike: I’d say that’s probably the most common issue I do see, and it’s because it’s a very, very complex field you’re dealing with. There are all different types of laws and all different types of statutory requirements depending on the type of business you’re doing.
So even though it’s the same issue, meaning just not having an understanding what that understanding is, [it] varies from case to case. It could really depend all upon where you’re actually doing business and what type of business are you doing.
Greg: Let’s back up a minute because perhaps successful implementation of a merger finds its roots in what was done before the merger was finalized and all those details were being hashed out and roles being assigned as you mentioned before. What type of integration strategy is good to have in place so you can hit the ground running?
Mike: Greg, the most important thing is to understand who’s on your team, right? Who is going to help you accomplish this goal? Whether that’s a service company or outside counsel or your own internal departments that are assisting with certain matters with this potential merger or acquisition. Really making sure you understand who is on your team allows you to then designate who is going to do what and when.
And making sure you understand the scope of the project. I cannot tell you how many times I see where an audit isn’t conducted prior to a merger or acquisition, what proper due diligence isn’t performed, where the issue isn’t so much not knowing what to do but you really have no idea what you’re acquiring or what legal entities are involved or what tax or legal or different HR or licensing components that need to be pulled in to make sure everything goes smoothly.
Greg: Let’s say you dotted all the I’s and crossed all the T’s with the merger itself, but didn’t have the implementation and integration plan and now you find yourself in this position of needing clarity. How do you do that on relatively short notice?
Mike: Unfortunately it’s not easy, and it’s never easy. You’d much rather be prepared and have everything planned ahead so you can properly tackle the situation at hand. However, it does happen. There are absolutely instances where issues arise.
When that does happen, it’s important to reach out to your trusted advisors. It’s important to reach out to services companies. It’s important to reach out to outside counsel. It’s important to even just pick up the phone and talk to your colleagues internally to figure out who is managing what because they might actually already be aware of something or maybe even working on something you weren’t aware of. Making sure the left hand knows what the right hand is doing can really help you out in those fire drill types of scenarios.
Greg: [It] can help out in a lot of different areas not just post merger. We’ve covered a lot of things obviously Mike. What other things should folks look out for in additional to what we’ve already discussed?
Mike: Aside from the obvious of knowing who to communicate with, knowing what you’re actually dealing with and creating a plan, everybody’s biggest fear in running into issues with any type of merger or acquisition is missing something of significant importance—whether that’s a filing deadline, whether it’s transferring a license—a lot of these “little things” can ultimately become very big things if they’re not handled.
You want to make sure that you understand not just the certificate of merger that needs to be filed with the state to legally effectuate that merger, but what needs to then be done after the fact to properly transfer any pre-existing licenses that still need to be in existence or maybe need to be cancelled just so you’re not setting your company up for potential liabilities, penalties or unnecessary fees that you might encounter months or even years down the road.
Greg: Let’s talk a little about risk management strategies now. That’s obviously something that companies will want to employ in all different sectors of the business, but as it specifically relates to post merger what are some of the better risk management strategies?
Mike: The biggest thing when it comes to risk management is obviously not wanting to incur any types of additional fees or have your authority to do business revoked within a specific jurisdiction, which at the end of the day could cost your company a lot more money than just that nominal or maybe not-so-nominal statutory filing fee or requirement.
A good risk management strategy goes back to the whole pre-planning process. Conduct that audit and understand what the actual legal structure of the entity is. Figure out are there licenses that are currently active? Are there licenses that are currently revoked? Where is the company currently registered to do business? What names are they currently doing business under?
Once you have that full research completed and the project scoped, it will then allow you to determine what steps need to be taken. Whether that is enlisting your tax and accounting people or your legal people who are maybe a business partner such as a service company to truly identify what needs to be filed and when.
Greg: Mike we’re just about out of time but as we talk about all this...what is the ideal outlook appear to be for 2017?
Mike: That’s the million dollar question Greg. Hopefully it will be good. I can tell you from my own personal experience that it’s been a busy start to the year. There is a lot of acquisition work going on right now which obviously means there’s a lot of things that need to be handled, as I just mentioned, and we discussed today. It’s just extremely important for people to be prepared.
Acquisitions don’t have to be this frightening scenario that you encounter. It should be exciting. It’s growth; it’s a movement forward in a company’s history. So being able to meet that head on and really avoid the pitfalls and all the pain and additional paperwork or penalties and fees from all these different government agencies, we just need to make sure that doesn’t cause extra stress to any already pretty stressful situation.
Greg: Mike obviously a lot to keep track of and a lot of organization needed post merger. A really good road map you’ve given us today. Thanks for your time.
Mike: Oh no problem. Thanks so much Greg.
Greg: Mike Malkowski is Client Relationship Manager at CT Corporation. For more information on post merger advice see the phone number or URL on your screen. I’m Greg Corombos.
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