The 10 Commandments for an M&A Transaction – Buyer’s Perspective

By: Justin A. Batoff, Esq.

Mergers and acquisitions offer exciting opportunities for growth, expansion, and strategic advantage. But for buyers, success in an M&A transaction hinges not just on identifying the right target—but also on a disciplined, well-structured approach from start to finish.

Below are ten essential principles—our “commandments”—to guide buyers through a successful transaction.

1. Thou Shalt Not Enter the NDA Lightly

The NDA may seem like a routine formality, but it can have long-lasting consequences. Buyers should be cautious about accepting overly broad confidentiality or non-solicitation provisions, “standstill” clauses, or restrictions on contacting employees or customers. Negotiating a fair NDA sets the tone for the rest of the deal and protects your strategic interests.

2. Thou Shalt Conduct Pre-LOI Due Diligence

Before signing a Letter of Intent, gather as much preliminary information as possible. This includes understanding the seller’s financial condition, customer concentrations, key contracts, intellectual property, and compliance history. While full diligence comes later, early-stage vetting can save time and prevent expensive surprises.

3. Thou Shalt Structure the Deal Wisely

Whether it’s a stock purchase, asset acquisition, or merger, deal structure has significant legal and tax implications. Work with advisors to understand whether a Section 338(h)(10) election or F-reorganization may be appropriate, and whether the transaction qualifies for capital gains treatment or will be taxed as an asset sale. The right structure can dramatically affect after-tax outcomes and integration efficiency.

4. Thou Shalt Consult Thy Lender Early

If third-party financing, especially SBA financing, is part of the deal, structure becomes even more critical. SBA rules prohibit earnouts and require any seller notes to be placed on standby. Engage your lender early to ensure compliance with underwriting guidelines, and to avoid costly rework or deal-killing delays later on.

5. Thou Shalt Negotiate a Thoughtful LOI

The LOI is not just a placeholder, it’s the roadmap for the definitive deal. Include critical deal terms such as purchase price assumptions, key closing conditions, holdback provisions, working capital adjustments, and a carefully drafted exclusivity provision. If valuation gaps exist, consider bridging them through earnouts or seller notes (unless prohibited by financing constraints). A well-crafted LOI reduces ambiguity and helps accelerate diligence and document drafting.

6. Thou Shalt Leave No Stone Unturned in Diligence

Once under LOI, due diligence must be thorough. Focus areas typically include financial statements, tax compliance, customer and vendor contracts, employment matters, litigation, data privacy and cybersecurity, and intellectual property. If the target maintains a qualified retirement plan, buyers should also review for potential operational failures such as late salary deferrals, incorrect matching contributions, or noncompliance with ERISA requirements. Tailor your diligence to the size, complexity, and risk profile of the target, but never skimp on quality.

7. Thou Shalt Clear Liens and Secure Consents Early

Begin lien, judgment, and UCC searches early to avoid last-minute surprises. You’ll also need to secure payoff letters from existing lenders and identify any third-party consents required under key contracts, leases, or licenses. Delays in these areas are a common cause of closing disruptions, especially in fast-paced lower middle-market deals.

8. Thou Shalt Let Diligence Guide the Purchase Agreement

The definitive purchase agreement should reflect what diligence has revealed. If risks have surfaced, such as unresolved tax exposures, open claims, or weak internal controls, they should be addressed through indemnities, escrows, or price adjustments. The scope and complexity of the agreement should scale with the size of the deal and nature of the risks.

9. Thou Shalt Coordinate Operational Transition Early

Seamless handoff of payroll, benefits, and insurance coverage is often overlooked but critical to post-closing continuity. Begin working with your advisors and third-party providers early to ensure a smooth transition of employees and benefits, and to avoid coverage lapses or payroll disruptions on Day One.

10. Thou Shalt Finalize the Closing Statement Carefully

The closing statement and working capital calculation are among the last and most critical components of the deal. Buyers should engage accounting advisors to model working capital targets and help negotiate post-closing adjustment mechanics. Even small oversights in these areas can materially affect net purchase price.

Conclusion

An M&A deal is more than just a transaction, it’s a strategic investment. By following these ten commandments, buyers can reduce execution risk, protect their investment, and increase the odds of long-term success.

At Batoff Associates, P.A., we guide clients through every stage of the M&A process, from initial exploration to successful closing and integration. If you're considering a transaction, we're here to help you move forward with confidence.