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Trust: A Practical Catalyst for Successful M&A Deals

Target companies and their prospective buyers have an arsenal of legal weaponry at their disposal to help facilitate a smooth and transparent deal. Due diligence often plays a prominent role in any M&A transaction, with plenty of skeptical investigation and verification of the target’s assets and liabilities. One of the main goals of due diligence is to provide the buyer with assurances that any accurate picture of the target has been drawn, so that its value can be accurately assessed and bargained.

The due diligence process is very pragmatic, and remains a primary component of deals because it serves its intended purpose quite well. However, there are other non-legal mechanisms that a buyer can apply to augment the role that due diligence plays. One of those mechanisms is the cultivation of trust. Although any M&A deal is an arms-length transaction, there are certain milestones in the deal-forging process when cultivating trust can lubricate the process.

In the early stages, when a buyer is shopping around for an attractive target to acquire, the buyer’s instinct may be not to put too much faith into initial statements made by potential target companies, for the obvious reason that the target has every reason to chest puff and present the most favorable view of itself. This is the perfect time for the seller to take purposeful action to cultivate trust with potential buyers. Much like everyday relationships, this is the beginning of the courting phase, when each party wants to get to know the other, and in fact needs to get an accurate view of the counterparty if the relationship is to remain viable. This is the target’s opportunity to demonstrate that it can be trusted by being fully transparent, providing only reliable, accurate, and fair statements about the business.

If the seller is successful, the foundation will have been laid for a interested buyer to build on. Once the buyer has become seriously interested in the target, based on reliable information provided by the target, a reciprocity opportunity arises. Knowing that a serious buyer exists, the seller understands that closing a deal has become a real possibility. Likewise, the buyer and those providing financing can see that they stand to benefit from a consummated deal on agreeable terms. The buyer can implicitly instill confidence in the seller by by returning the transparency the seller extended earlier.

This is the buyer’s chance to be upfront about its intentions and what it wants to achieve from the deal. Candid discussions between the parties and honest information sharing will keep the deal from getting slowed down by discoveries of misstatements, withheld information, and unvoiced plans. With ongoing cooperation, the deal making will remain focused on material issues like purchase price and deal structure. And with any luck, a deal will be struck that gives both sides cause to celebrate.


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