A merger and acquisition (M&A) is not for the faint-hearted. Rather, it is a rigorous process with a required degree of detail that will make your head spin. A myriad of processes have to go right for this sort of business dealing to be successful.
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But the good news is that successful M&As are not exclusive to Facebook-like acquisitions or Berkshire Hathaway buy-overs.
There are many reasons why top executives and business owners decide to do a merger. Some mergers are a way to kill competition by buying up rival companies. Other reasons may include the ability to easily gain new customers, boost business productivity, seamlessly penetrate a new market and even save a business from going under.
Whatever the reasons for a merger, the entire process starts and ends with strategy. You have to be willing to look at everything from culture fit, geographic location and product to the market, the industry and business perspectives. No one deliberately plans to enter a bad deal, but unfortunately, it does happen.
Here are a few tips that can help you keep your focus on the right things if you are about to execute an M&A.
1. Thoroughly evaluate your liquidity and financial capability.
While an M&A is not simply a financial transaction, you will be remiss to misinterpret the importance of financial stability while executing such a deal. If the recession taught businesses one thing, it is the importance of liquidity above profit-and-loss statements. Before embarking on a M&A, ascertain that your company has enough liquidity to make and sustain such an investment.
Also, keep an eye on your capital structure; you want to be sure that it can handle the added strain and responsibility. If each of these questions can't be answered in the affirmative, it may be a bad idea to go forward with your plan. Reason? Unless you can handle a sufficient amount of debt and access equity-capital funding strategies to provide you with the perfect balance sheet, you will need to hold off on that M&A.
2. Put together the perfect team.
Almost every company has these three divisions: finance, sales and marketing and operations. So, it makes sense to pull together a pool of experts that represent these areas of expertise. Depending on your unique situation, you may need to bring in external help in the form of legal counsel, valuation experts, investment bankers and accountants.
It is extremely important that the people who make up this team be able to work together; this is neither the place nor the time for maverick thinking. Everyone's eyes must be on the same objective, and these experts must think cohesively and communicate constantly.
They must also be willing to carry out their respective responsibilities within the limits of their authority as defined by the CEO or someone appointed by that person.
3. Establish your goals and measure for success.
Start by asking yourself some pertinent questions. Is your objective to boost your market share? Are you seeking to bring in new products, services and intellectual property under your corporate wing? Are you trying to break into new and contiguous markets? Are you trying to eliminate a competitor or to achieve vertical integration?
This introspection will definitely help you set goals for your business, and make decisions in the right direction, to keep you from veering off track.
4. Make sure information can be shared securely and efficiently.
In today’s world, you’ll hardly hear of a company (buyer) sending over a team to the physical location of another company (the seller) to look at its books. We live in a digital world today that has eliminated the need for that hassle. However, this digitization brings its own hazards, especially in the form of security issues.
Related: My Post-Acquisition Report Card
For this reason, consider using a virtual room to help both parties look at each other’s business documents securely and efficiently. Virtual data rooms act as a neutral and secure off-site location where members of both teams can be free to share documents and collaborate effectively.
Virtual data rooms help expedite the M&A transaction process, not to mention that they significantly cut down costs such as transportation (if you were to fly in your executive team to physical data-room locations).
5. Get the best leadership team you can.
If you’re planning to merge two separate entities, this means there will definitely be compatibility and integration issues, no matter how hard you've worked to reduce the risk of that happening.
Every transition requires the presence of strong leadership, whose members will be chosen to define the tone and set a precedent for the direction and efficiency of the new entity. Daniel J. Dewitt, a psychologist and partner with Shields Meneley Partners, a Chicago-based consultant, has suggested the right questions to ask, to avoid making the wrong leadership choices.
These include questions like, “Is the executive a clear, quick thinker?” and “Does the executive have strong people skills?"
Importantly, these transition team leaders must be chosen from both sides of the deal.These people will already understand the workings and culture of their respective companies and understand their employees on a personal level; and those advantages trump the hiring of new executives.
Related: How to Retain Your Company Culture After Getting Acquired (And Why That's So Important)
In addition, these leaders will be able to set expectations and develop a well-defined transition and work plan while maintaining flexibility and adaptability as conditions continue to evolve.
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