M&As have a number of costs that can escalate fast into running hundreds of thousands. It is significantly important to know these costs and the strategies to reduce such costs for the success of the transaction. In the article, we outline eight various types of M&A costs with strategies to minimize them.
Due Diligence Costs
Due diligence is an important part of the M&A process and, at times, requires thorough investigation of the target company. The process may turn out to be costly, but on the other hand, it is the only means for identifying potential risks or liabilities.
Strategy to Cut Costs
The advent of data rooms derived for M&A will facilitate due diligence. Virtual data rooms offer safety and efficiency in document management, thus saving a great amount of time and cost spent on physical data rooms.
Legal Fees
The legal cost may become high in an M&A transaction in case of complicated legal issues. Negotiating fixed fees or capped fees with legal advisors, and also defining scope clearly so that unwanted costs do not come up.
Advisory Fees
The advisory fees are derived from the payments made towards financial advisors, consultants, and investment bankers who pave the way for the completion of a transaction.
Strategy to Reduce Costs
Advisory roles, to some extent, can be undertaken in-house; advisors should be negotiated on the basis of performance-linked fees.
Financing Costs
Besides the standard costs of any M&A transaction, the financing will typically involve interest, underwriting fees, and other incidental costs associated with financing. Shop for the best available financing and negotiate seller financing and earn-outs as alternatives to traditional financing options.
Integration Costs
The integration costs are connected with the integration of the acquiring and target company’s activities. This can include IT, restructuring, and training of employees.
Cost-Reducing Strategy
Prepare a fully-fledged integration plan well in advance to evaluate the possible estimation of revenues saving and also to avoid irrelevant expenses.
Regulatory and Compliance Costs
Complying with the regulatory requirements involves massive costs, from filing fees to compliance-related expenses. The timing of requirements from regulatory bodies can often be planned in advance by GRP, who should seek to liaise with regulatory bodies early on in the process to avoid the risk of requirements leading to costly delays. Compliance software can help to make the reporting and other filings that regulators require more efficient.
Opportunity Costs
Opportunity costs represent the lost potential revenue as management is spending time on the M&A transaction rather than running the business. Outsource the actual transaction work to an internal M&A team or external advisers so that management can concentrate on running the business.
Cultural Integration Costs
The smooth blending of two corporate cultures is a costly and complicated process that needs proper handling. Establish cultural integration programs and workshops for the seamless deal process with less begrudging by employees.
To know more about the expenses and strategies of M&A management, have a look at our in-depth guide on data rooms for m&a. It will give you valuable insights into how to actually control and cut most of M&A costs.
Knowing the different M&A costs and strategies for their reduction, therefore, can make a very big difference in the success of the transaction. Reasonable leveraging of technology, negotiation of fees with advisors, pre-planning of integration, and early-reaching out to the regulatory authorities for permission, the costs could be minimized while maximizing the advantages accruable to organizations from M&A activities.