The volume of M&A operations in Brazil in 2020, according to PwC, grew 14% in relation to 2019; only those of large companies are included in this statistic. In fact, Mergers and Acquisitions operations have become increasingly frequent, and many are the success stories.

But research indicates that the failure rate approaches 50% of operations. the main failure factors are the marketing error when trying to reposition the purchased company, the organizational and cultural conflicts in the absorption of the new company, and failures in the conduct of the audit (due diligence) that must precede the closing of the transaction.

First of all, it is important to consider that the dynamics of the process of buying and selling companies it takes place within three major steps. The first is the preparation of the valuation and negotiations, then the audit (due diligence), and finally the closing of the operation.

In each of these steps, a large exchange of information between companies in both sides of the negotiation, such as data collection for valuation, documents and facts to be audited after the negotiations, and the final contracts of transfer of ownership and payments.

Valuation is the procedure for estimating the company’s fair market economic value acquisition target, therefore a fundamental element in the proposition of price and negotiation between the parts.

Valuation, specifically by the discounted cash flow method, is the best adopted regularly, it is a procedure for qualitative and quantitative analysis of the company’s performance. in the past, and mainly, expected in the future.

For the valuation, information is obtained that allows a first broad view of the company, comprising aspects of the market, competitors, sales, costs and expenses, investments and indebtedness. It is enough that this information is at an aggregated level, not atomized. Example, to know the sales profile, it is enough if you know the participation relative in the total and the average unit price of each product line of the company.

So, in this case, there is no need to know details of the sale of products that have a relative share of less than 3% in total sales, or the corporate name and CNPJ of each client.

Initial information for the valuation must be made available by the seller to the potential comparator based on the Non-Disclosure Agreement (NDA). IT’S fundamental, at this stage, and at others, that the information is correct and verifiable, because later on, in the due diligence, if negotiations prosper, verification will be carried out which must be consistent with the aggregates provided for the valuation.

It is worth making a parenthesis here, to highlight that better negotiation will certainly be achieved by the seller, if the seller has previously taken care to make the proper legal records on its assets, such as real estate, trademarks, patents, exploration rights, as well as regularization contracts with employees, customers, suppliers, etc.

In the next step, if the negotiations progress and the parties reach an agreement on the company’s price, payment methods, guarantees, types of assets, precedent conditions and resolutive, the Memorandum of Understanding, the Memorandun of Understanding (MOU) is signed.

From this point forward, in fact, an important due diligence process will begin that will cover all aspects of the company, including its operations, customers, assets, liabilities, revenues, costs, personnel, taxes, contracts, lawsuits, licenses, certificates, certificates, etc.

At this stage the audit will dive deep to verify accuracy and compliance with standards legal, and accounting, going to the greatest degree of detail, for example, commercial contracts, agreements of partnership, calculation and payment of taxes, accuracy of payroll, types and characteristics of loans, environmental licenses, etc. That is, of the entire company, therefore of everything that was only seen in the aggregate in the valuation calculation.

In the event that the audit does not demonstrate any potential liability beyond what is considered in the valuation calculation, proceeds to the final stage of signing the various contracts, highlighting the Purchase and Sale, the Sales and Purchase Agreement (SPA), and, in the case of partial purchase, the Shareholders’ Agreement emerges as an essential element.