In part one of this four article series, we explored the landscape of the Merger & Acquisition (M&A) ecosystem and how M&A activity is generally driven by strategic objectives that must form a match between both parties – the buyer and the seller. As discussed in Part 1 of this series, mergers and acquisitions, in some cases, may be required by one or both organizations in order to survive. In other cases, the M&A move be seen as a strategic action that will lead to a leaner, more profitable company once the transaction is completed – one that is better positioned for growth. Given the need to acquire or merge will always be present in the business world, how can it be done successfully? In this installment, we will delve further into the points of commonality between mergers and acquisitions and look at the buy and sell-side perspectives.
Points of Commonality: Some Initial Factors
Mergers share many points in common with acquisitions. Some would say that the question is not whether to integrate and merge, but rather: “to what extent and in what sequence?” Much more than the financial aspects of any M&A deal and the resulting value to the market (which, actually, must have been fully vetted during the due diligence process that will be discussed later) it is the “people” that need to be integrated. The core values and the cultures of the two organizations are extremely important considerations that simply cannot be overlooked. Factors such as work environments or day-to-day spending habits of the two organizations could very easily be the make or break factors in getting the buy-in required and the synergy hoped for in the M&A. Human Resource departments and the executives of both companies have a very important role to play here – during planning and in execution of the plan.
For the acquirer, the M&A process spans tasks that range from researching potential targets all the way to negotiating and closing the deal. For the company being acquired, they face emotional turmoil, stress and the arduous task of collecting and turning over mass amounts of information while being grilled with questions.
Yes, there are innumerable data points to collect and hand-over or to review, and stress must be managed against time-lines that may be critical to the business survival of one or both organizations. Additionally, in some cases, seemingly arbitrary time constraints on lower-level personnel can be perceived as artificial and unrealistic – increasing stress and complexity as more work is squeezed into the same amount of time. It is important to communicate the reasons for tight timelines (e.g. avoiding a bidding war with another potential buyer) and to manage those involved in the process carefully to ensure progress is tracking to expectations. But these are the easiest parts of the M&A process to deal with and get correct. There is so much more to the ecosystem of an M&A transaction to consider.
The life-cycle of an M&A depends upon your point of view during the experience. Let us explore two M&A perspectives, the “buy” and the “sell” side – again within the context of common points between mergers and acquisitions.
On the buy-side, the M&A process starts with prospecting potential candidate companies; evaluating many dimensions of the short-listed targets and considering the risk / reward balance of each. To be considered are factors such as:
- are the financial systems compatible?
- are the accounting practices up to standards?
- are the key executives and managers competent?
- are there legal issues and contract ramifications?
- are key staff stable or would they be flight risks?
- would earn-outs for key managers, sales stars, etc. be a good idea?
- do employee contracts “fit” with the existing personnel policies?
Partners and vendors:
- how will the M&A affect relationships with key partners and vendors?
- will competition be introduced as a result of the M&A that could jeopardize any mission critical market channels, joint ventures or resellers?
- are there any credit issues?
- will current suppliers still be needed if the M&A transaction completes?
- can new terms be negotiated as a result of larger orders in the future?
- how will the M&A affect relationships with key suppliers?
- are there any credit issues?
Customers of the business:
- are customer relationships in good shape?
- what percentage will likely come across if and when the M&A completes?
- will strategic customers be gained as a result of the M&A?
- will strategic markets be opened?
Internal customers (e.g. vertically integrated supply-chain organizations):
- how will an M&A transaction affect shared services, such as Information Technology, Finance and Accounting?
- will existing vertically integrated organizational elements need to change?
On the sell-side, the M&A process might start with consideration of such factors as:
- will current management be retained?
- what level of autonomy will be allowed?
- will our brand name survive?
- will our expenses be managed by our current management or through a new approval process (e.g. what happens to my executive platinum card?)
Financial, timing and valuation:
- will a buy-out allow the company to continue on with strong financial backing?
- will we have access to credit avenues that were not available before?
- is this the right time to consider selling?
- what is the company worth?
- what attributes of the company might be featured to the buyer in order to get a higher premium on an offer?
- how would this affect the culture it took so long to develop?
- do the values and the culture of the suitor match our own?
- would our employees be at risk?
- would this provide greater career opportunities for them?
- would this make it easier to attract top talent?
- would our customers take the news in a positive way?
- would new markets be opened to us as a result of the M&A synergies?
- would our customers benefit from having a wider range of products and / or services?
The factors listed above are by no means an all-inclusive list, but the list does begin to touch on many variables that should be considered during early analysis of an M&A move.
It is critical to get a thorough understanding of the state-of-affairs of the target company and use that information to assess the value they offer to your organization, then make an early determination of whether or not to proceed. It is a risk / reward proposition. If the rewards appear to outweigh the risks and there are plans to proceed, developing a future-state of the newly formed organization will be more accurate and meaningful as a result of the analysis.
If your company is being acquired, organizing the requests for information early on will benefit you greatly later in the final stages of the transaction. But how will you know what data the acquirer may ask for? It is generally safe to assume that they will ask for as much detail in each facet of the M&A ecosystem as they can get. Often, the level of detail the potential buyer may request goes down to wanting information on the types of locks used on buildings. Using the list above of factors the acquirer should consider provides a starting point for organizing the collection effort of records, proof of value and logistics on how information will be shared.
Regardless of the perspective you have (acquirer or being acquired / merged), the M&A experience is largely predicated on how well the process is defined, planned and executed, monitored and adapted along the way.
In the next installment (Part-3) of this four part series, we will examine domestic versus international M&A transactions as well as delve into how to select another company worth merging or acquiring. We will also explore how due diligence should actually be performed.
—Article by Joe Evans of Method Frameworks—-
Joe is a published author, frequent speaker and recognized expert in corporate strategic planning . Contact Method Frameworks about scheduling Mr. Evans about an upcoming speaking engagement or email requests to firstname.lastname@example.org