Why Do I Need to Sign a Confidentiality Agreement?
Agreeing to keep all information about the opportunity to purchase or invest in a business confidential is an important prerequisite to learning anything at all about the specific opportunity. This is because uninformed employees, suppliers and customers may assume that the company is in trouble or that they will be left without jobs, warranties or payment due. Their inappropriate reaction which may include key employees leaving employment and suppliers cancelling payable terms may cause severe hardship on a company where confidentiality is breeched.

You typically will be asked 1) not to divulge any information regarding a company's operation or financial position 2) not to contact the owner or employees directly 3) not to reproduce or divulge information to others 4) to use this information solely for the purpose of evaluating interest in buying the company and 5) to return all information provided upon request.

You may also be asked to sign a non-piracy agreement. In this contract you agree not to use information provided to solicit, divert or in any way interfere with employees, customers, suppliers, contractors or other relationships which are related in any manner to the business activities.

If you are already in the same industry and may have relationships or even contemplate relationships with the same suppliers or customers, you need language that will not preclude you from these relationships. In all cases it is best to have the agreement reviewed by your counsel prior to signing.

What is a M&A Firm and What Do They Do?
The Merger & Acquisition firm, business broker, intermediary or investment banker. They can be all one in the same. Where they differ is in their talent and the size deal they are competent in representing. NVST.com categorizes them in the following manner: Business Brokers handle companies with sales under $5 million, Intermediaries prefer companies with sales between $2 - $20 million and Investment Bankers target companies with sales in excess of $20 million.

The reality of this is that a business broker would love to snag a $20 million company to represent and will attempt to do so even though they may not be competent handling the transaction.

You, the unwary business buyer or seller client needs to check references and ask questions before signing a legally binding agreement or allowing them to represent you. Merger & Acquisition people are easy to qualify by asking them about their education or experience prior to getting into this line of work. When you find a highly educated professional or a CPA, attorney, or previous business owner that possesses financial skills as well as marketing skills - you are on the right track.

A brokers role is bringing the parties to agreement in accordance with the terms imposed by his or her principal. Usually the broker plays some role in the negotiation process, even if it is limited to presenting the terms under which a business is offered for sale. A broker is held to a duty of undivided loyalty to the party who has retained him or her and in most states this must be disclosed in writing to all parties.

Experience from previous transactions can make the good broker invaluable. (S)he will have an opinion about the realistic market value of the business. And (s)he will know the information requirements and the preferred sequence of events that can keep a transaction on track. An understanding of the seller's retirement plans alone can help put a deal together that otherwise would crash and burn.

What Does a Business Valuation Analyst Do?
The Valuation Analyst is not an advocate for their employer and given the same information, should come to identical conclusions irregardless of who hired them. In order for this to be true, both in action and in appearance, the fees charged may not be contingent upon the purchase or sale of a business. The Analyst's conclusion is an opinion of value based upon professional standards and experience. It is non-precise and may differ from another expert's opinion. The actual purchase/sale price of a business takes into account additional factors such as terms, negotiating ability, and the needs of a specific buyer and may be quite different from a fair market value valuation. The Valuation Analyst will not audit the company records and will not search for fraud. They will however, withdrawal from an engagement if information necessary to reach a conclusion is withheld.

How To Simplify The Process.
The acquisition process can seem overwhelming to even an experienced buyer or seller. Let's put it into steps. Acquisitions require significant time and financial expense, with little assurance of success. Less than half of the initiated transactions to buy a particular business actually complete. The steps include:

(1) determining you investment objectives
(2) searching for the right opportunity
(3) valuing the business
(4) a detail investigation of the business prior to investment
(5) negotiating and managing the transaction and
(6) closing the deal

An aggressive time frame to complete these steps is approximately 3 months.

From the perspective of the buyer, initially there needs to be an examination of your objectives in owning an actively managed business. Don't skip this step. Now remember you can also start up a company from scratch.

So include in your evaluation an acquisition compared with other strategies to get into business. After consideration of the benefits of buying a company over starting one the general conclusion is usually that if you are managing it yourself, taking over an existing business is generally less risky to do than to start a new business.

In general with an acquisition, you will not get as high a return as venture investments, but it will be more immediate and should be higher than in passive investments such as public company stocks & bonds.

(2) searching for the right opportunity

The acquirer should prepare a written checklist setting forth acquisition objectives and the criteria that an acquisition candidate must satisfy. In developing criteria for potential targets, the acquirer may consider

Type of products or services sought
Price range of target company
Sales volume and/or market share of target
Profitability in terms of ROI or ROA
Willingness of target's management to remain after acquisition
Number of employees
Compatibility of corporate cultures
Patent position of target
Geographic location of target

Keep in mind that if you are unrealistically stringent in your requirements, no progress can be made. The written criteria should strike a balance between such overly precise definitions that few prospects could qualify and such loose definitions that any targeted company could qualify.