The Ins and Outs of Cashless Mergers

A cashless merger may be just the ticket for firms looking to be more efficient. Cashless mergers allow the synergies of combining two operations to be realized but without the implication of one owner being bought out. Agreeing on relative value is often easier as the agreed valuation methodology (or methodologies) is applied to both firms. For example, if the owners agree to use EBITDA as a valuation method, what EBITDA multiple is used is less important since the same EBITDA multiple is used for both firms.

Benefits of cashless mergers include:

  • Realization of synergies.

  • No incremental cash required.

  • Less complex valuation discussions.

  • More readily available bank approval.

Pre-merger banks need to approve a cashless merger. However, because of the savings generated by a cashless merger, this approval is easily granted. In fact, it is not unusual for the bank of one of the merged firms to request the ability to fund the combined firm. This situation is preferable as it facilitates integration and the requirements to co-mingle assets to implement synergies.

If a cashless merger is in your future, here are the required steps:

  1. Agree on merger benefits. When both parties understand merger benefits, it is much easier to surmount the obstacles of a merger. THIS IS THE MOST IMPORTANT STEP.

  2. Agree on relative valuation. One methodology or multiple methodologies can be used. Ultimately, the desired relative value can be achieved by manipulation of closing balance sheets through dividends or debt adjustments.

  3. Agree on social issues. Both parties need to agree on ongoing management, brand, operating philosophy, operating procedures, location, etc. It is highly recommended to hire an experienced independent party to assist in identifying and addressing social issues. THIS IS THE MOST DIFFICULT STEP.

  4. Agree on communication plan. This step is often overlooked, but establishing how and what you communicate to employees, customers, banks and suppliers is imperative for a successful merger.

  5. Document and close. This step should be completed in conjunction with competent legal counsel. Hire lawyers who understand mergers and acquisitions. Real estate lawyers and friends should be avoided.

Cashless mergers are just one option in the mergers and acquisitions portfolio. For more details, join our Executive Education Series covering the key topic areas on mergers and acquisitions:

First session: Thursday, Nov. 10 | 2 pm ET

Learn what is happening in today’s M&A market. 2017 will be one of the most active years for acquisitions. Today’s transaction structures are different in response to a restructuring industry. Participants will learn why an acquisition strategy has never been more important.

The session will focus on:
Why M&A makes sense as a strategy
Discussion of Tuck-Ins
Discussion of Cashless Mergers

If you have executive leadership responsibility for your company, plan to join us!
Register at:

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