Similar to any major production, the M&A process requires that the right people are in the right places, and at the right time. Veteran deal makers understand that involving the right stakeholders at the proper time can have a significant impact on the M&A process, and possibly the ultimate value of the deal.
For small and medium businesses who don’t frequently engage in merger and acquisition activity, figuring out who should do what and when can be a daunting task. However, it is critical to get this part of the process right from the start. Thankfully, SMBs can learn from the prior experience of deal makers so they know what to do and when.
Before we jump in, it is important to understand that no two deals are alike. No silver bullet exists to ensure that your deal will go through as planned and without any speed-bumps. The industry in which you operate, the current economic conditions, and the complexity and type of deal will all impact the M&A process. Ensuring you have the right stakeholders in the right place can help ensure your deal is completed successfully, though by itself it is no guarantee.
The M&A process requires that various groups be involved and at varying stages of the deal process. The five M&A stakeholder groups include:
Prior to engaging in any M&A activity it is important to know who sits in the above groups.
The CEO and other c-suite executives will collectively for the Investment Committee (“IC”). In any deal process, the buck stops here. The IC is the ultimate decision maker and retains responsibility for the success, or lack thereof, of each and every transaction.
The IC is responsible for ensuring that the right people are in the right seats in the other groups. They help the various groups maintain focus and discipline as they go throughout the process. The M&A deal process can quickly get messy if someone doesn’t help keep the teams aligned. The IC is this force that encourages teamwork and laser like focus on the objective.
When first starting down the M&A path, the IC will play a significant role. They will create the vision for the post-transaction entity and will ensure the other groups are properly formed. Once the process is underway, the IC may not be as involved in the day-to-day operations. However, it is important that they still be available to make critical decisions and ensure that the other groups are working in unity towards the same goal.
Once a transaction is complete the newly acquired entity will be operating within the buyer’s organization. In many cases, this takes the form of operating under an existing unit. The Business Unit team should be involved early in the process to provide strategy guidance, such as when is a good time to pursue M&A activity and when it might be best to hold off.
As the M&A process enters due diligence and integration planning, the business unit team should be closely involved. Give their specific knowledge of the industry and Target Co., they should be able to help point out red flags and identify opportunities for synergy post-close.
For SMBs, it may be tough to have a dedicated, full-time business unit team. Often, employees must wear multiple hats and the time requirements may distract from their normal day-to-day tasks. It is important for the IC to communicate the importance of the transaction. If business unit members rush through diligence or integration planning so they can get back to their daily work, problems can certainly arise that result in headaches down the road. A mentality of “measure twice, cut once” should be imbued in the team and, most importantly, they should know the IC and C-suite fully supports them.
The corporate development team is involved in the M&A process from start to finish. For serial acquirers, a dedicated team may exist with the sole task of completing deals. For smaller entities, the corporate development team may be assembled when needed and disbanded once the deal is complete.
The corporate development team is typically tasked with identifying targets, managing the due diligence process, and bidding/negotiation with the target.
It is important that members of this team be well-informed about the target, the industry, and why your company should be the buyer. Numerous non-financial factors are considered by sellers in an M&A transaction. If the price is right, but the seller doesn’t feel you are the right buyer, it could spell trouble.
The often touted reason to conduct an acquisition is to realize synergies. The oft cited “1 + 1 = 3”. If you are pursuing a transaction with the hopes of realizing such synergies, then be sure your transaction lead is involved at the right time. The Lead’s job is to help finalize the deal and facilitate integration.
If you think your deal ends when documents are signed and a wire is sent, think again. The integration process can make or break the synergies that caused you to pursue the deal in the first place. It is critical to have your lead involved in the transaction as early as possible. Someone with prior deal experience would ideally fill the role. If this is your first go-around the M&A process, a well-organized member of your team with strong management and execution skills should be selected.
You and your company are likely very talented, but you won’t have all the answers during the M&A process. No one does. Your outside advisors may include CPAs, lawyers, and other deal makers. Enlist their assistance to ensure you are going down the right path. Ask your advisors to be active early in the process and to remain active through close. They can help you identify red flags, pitfalls, and, on a more positive note, good opportunities.
Will it cost a bit extra to have your external advisors engaged throughout the life of your deal? Yes.
However, it will cost less than a flawed, poorly executed deal that you live to regret.
Running a proper M&A deal process requires discipline and having the right people in the right seats. If you are new to the world of mergers and acquisitions, I would advise you to learn as much as possible from successful deal makers and to enlist outside assistance.
For smaller companies going down the path for the first time, it is very easy to overlook certain parts of the process or to make false assumptions. Build a quality deal team, seek outside advice, and be sure to learn from your experiences. Keeping a deal playbook is a good idea so that when you embark on your next M&A adventure you can revisit lessons learned from prior experiences.