This tip is especially important for buyers, as a quality system for finding potential acquisitions could prevent them from ending up in an auction for the company. Competition is bad from a buyer’s perspective, and it will only drive up the price. Tap into networks, reach out and build a stream from which potential targets can flow. Ideally, sellers should know of your interest in buying before they are even looking to sell.
This may seem like an obvious step in any combination, but it is too important to leave out. In many instances, one party may become too enamored with the upside of a deal and place too much faith in the perfect situation occurring. Worst case scenarios should always be considered to correctly weigh risk. Financial analysis including the usage of basic financial statements, key financial ratios, and valuations of the individual company and the market are crucial to M&A success.
The only way a deal is going to work to its full potential is if each party knows exactly what the other wants. Not only should both parties know, but the shareholders should know as well. This means being precise about why the deal is a good fit, the upside and risk of the deal, and how the company plans to capitalize on the upside. Without a clear plan, the deal will start to fail soon after it has been made.
Each company will have a nuanced operation style and personality. The important thing is to assess whether their respective cultures will mesh. The finances of a deal are important, but the culture of the two companies can make or break the deal. Managers of an acquired company will inevitably feel a loss in autonomy, which can be a shock. Will the values of the company mesh well with the values he or she learned from the previous company to quell these feelings, or will they be contrasting and lead to tension and mediocre performance? In the end, a company is an organism made up of its employees. A company with happy employees who feel as if they belong has a much better shot at being successful than one with disgruntled and disenfranchised employees.
Any M&A function will be arduous. An average deal can take anywhere between four months to a year. This process will require immense dedication, preparation and attention to detail to overcome all the hurdles of the deal. Through the work, it becomes easy to focus solely on the end goal, forgetting the clear intentions laid out in the beginning as well as ignoring signs of a poor deal. I am not saying walk away at the first sign of trouble. Rather, be sure to keep a keen eye for issues along the way and react accordingly. This could mean renegotiating terms or tweaking strategy, but could also mean calling the deal off completely.
The Department of Justice, Federal Trade Commission and individuals can all sue to block an acquisition under a pretense of “substantial lessening of competition.” If challenged, legal expenses and the time consumption can be staggering. This is just one of many ways any M&A can be attacked legally. To minimize cost in the case a combination is challenged, a good legal counsel can prove invaluable. Outside of the court room, good lawyers will help in the negotiation process. Trust is important in M&A, and it can only be at its highest if each party is certain that they are protected from being taken advantage legally in the contract.
As stated before, the M&A process is intense. Setting tangible goals and deadlines will help the entire team keep track of the deal’s progress and continue with a purpose in mind. Long hours, complicated models, and miscellaneous other issues are stressful, but letting deadlines pile up can derail an entire deal. Concluding the deal will keep getting pushed back, and this will either cause more unnecessary stress, or one of the companies may find a reason to walk away, and the deal will be over. Neither of these situations are ideal and can be avoided by setting and sticking to deadlines.
If the culture fit can make or break a deal, why not find an expert to make sure the merging of cultures is smooth? Sometimes, the acquired staff may lack the correct expertise to operate in a new system. To quell this issue, experts will be responsible for preventing an imposition of inappropriate controls or new divisions to avoid problems. They are also responsible for educating management on the characteristics of the new system, and making them feel part of the bigger team instead of feeling isolated. They will explain the increased opportunity for advancement to low-level employees, ensuring proper work ethic. These functions and many others will aid to a smooth transition which will benefit the entire process.
This tip is especially important early in the post-merger process. While educating the acquired staff helps, there are bound to be some difficulties. Dedicating time and effort to actively listening to the concerns of the new company will build a healthy relationship moving forward. Issues can be dealt with early and effectively rather than being pushed aside and causing them to fester.
Once the deal is complete, review the entire process. Figure out areas which need improvement and processes that worked well. As more deals are made, the game plan becomes more efficient, and unexpected issues will be much easier to prepare for.