No doubt you have heard about the “art of the deal”! That individual is hard to avoid! However, in everyday business life, a deal is struck in the process of acquisition that, most times, is designed to add value on both sides of the table. If either party doesn’t see enough value in going ahead with the deal, whether it’s a single project or M&A, then negotiations aren’t likely to be successful.
M&A should be part of your company’s business plan. This is an important area for transformational development, and decisions about deals should be the result of a well-considered strategy. The important elements to focus on are the reasons that drive you to head to a M&A strategy.
Reasons to Develop an M&A Growth Strategy
1. It’s the Right Time for M&A
You’ll know it’s the right time for an M&A growth strategy for your company when your business has already positioned itself as a leader in its sector. Your company is in good shape and can finance its growth. The financing can either be handled in-house or through a financial partner who understands your view vis-à-vis your growth strategy.
2. You’ve Set the Right Goals for an M&A
Before you start looking for a target company to be the object of an acquisition process, you’ll need to set goals and define criteria. How will acquiring a company help you reach your long-term goals? Are your main priorities to get your products to new (international) markets or to acquire talent, technology or new products? Do you want to take over one of your direct competitors, thus changing the market? It’s crucial to have a clear set of expectations for growth through M&A.
3. You’ve Assembled the Right Team to Execute
We think that having an advisor is almost an essential requirement for participating in an M&A process in a professional manner. You also need to assemble the right team to prepare for M&A. This includes running the commercial, legal and financial & tax due diligence, determining the strategic impact of company integration on your stakeholders (your customers, your supply chain, your employees, governance, etc.). The depth of the due diligence will differ from one target company to the other and also from one buyer to the other but basically, the more external stakeholders are involved, the deeper the due diligence required.
Your M&A team will also need the skills required to manage and implement the necessary post-deal actions with the target company. What capacity does your business have to take on the new reality of a combined business that has the potential to reach more buyers? Processes for production and / or services delivered to customers directly and with suppliers from multiple locations bring first internal complexity, but should be put in place to increase value and growth opportunities, and to optimize cost on the medium term.
4. Direct your M&A Efforts at a Previously Identified Target
Once you have clearly defined goals for your M&A efforts, the parameters for acquiring a company are easier to set. Instead of looking at other businesses and then trying to determine how they might fit in with your M&A goals, a much more effective strategy is to determine exactly what acquisitions would provide your business with the most benefit.
In a similar manner to the way your Market Department might do their homework to determine your ideal customer, your multidisciplinary (i.e. not limited to finance) M&A team will determine what the right target company would look like. Much like the “picture” of your ideal customer, you need to have a clear idea of which solutions, products and services on the one hand, what know-how on the other hand, the target company might bring to your organization, its desired size (number of employees, sales volume per year etc.) and the expected synergies that can be achieved with your own organization.
There is nothing to be gained by considering companies that are outside your selected “target” criteria. If they aren’t a good fit, you would be wasting your own company’s valuable time and resources.
The other side of this coin is that your business should be appealing for the target company as well. Both sides should reap a visible benefit from the combination, otherwise, there would be little point in exploring the possibility. You want your business reputation to be one that is associated with thoughtful, measured moves, not ones that are being made without much apparent foresight.
Preparation is the Key to an Effective M&A Growth Strategy
To achieve your goal of business growth through M&A, you’ll need to devote the time required for the preparation of a detailed post-merger plan. It can certainly be tempting to try to grow your business before you and your team have been able to develop a strategy to provide value over the long term. This is a situation where a well prepared M&A plan places your company in a stronger position when choosing target companies and maximises your ability to persuade the target company to become part of a wider business.