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When a company that has never pursued any M&A (pure organic growth) decides to implement an inorganic growth strategy: how should the company prepare? I think the first step is to understand key success factors in M&A (from the buyer’s perspective) and critically check whether sufficient resources and skills are available in the company. Furthermore, opportunity cost should be analyzed in detail: what value can be created by executing other projects (non-M&A projects) with the same use of resources (time of best employees and money)? Only after this initial self-reflective analysis, companies should start with preparing the M&A project (i.e. defining purpose of M&A, search strategy, search criteria etc).
Hi David, you covered most of the important possible activities properly. but for newcomers with limited pre-knowledge, I can add using the investment bankers who are specialized for deep drilling the hidden value of the company and methods for make it up and prepare it for M&A.
I agree that you covered some of the high level topics. Another note, outside of the practical tasks involved in M&A and the strategic reasons behind pursuing that path, is the cultural aspect. Culture is an important component to any business. Will the culture survive and thrive after an acquisition? How do the current employees feel about going from a small business to a medium sized business? How will they feel if they see the business they are loyal to terminate XX number of people after the acquisition? What if some of those people are from the acquiring company, and some from the acquired company are kept? A merger between firms can offer significant benefits, but culture is fragile and should be protected as well.
By following these steps, companies new to the field of M&A can lay a strong foundation and enhance their chances of successful M&A transactions. Seeking advice from experienced M&A professionals or consultants can also provide valuable support throughout the process.
1) Define M&A Strategy
Clearly articulate the strategic objectives and rationale for pursuing M&A. Determine the type of acquisitions that align with the company’s growth plans, such as entering new markets, expanding product/service offerings, or acquiring specific capabilities. Develop criteria for target identification and evaluation.2) Build Internal M&A Expertise
Establish a dedicated M&A team or hire external M&A advisors to provide expertise and guidance throughout the process. This team should have a solid understanding of M&A fundamentals, including due diligence, valuation, negotiation, and integration.3) Develop M&A Playbooks and Processes
Create comprehensive playbooks and standardized processes that outline the steps involved in the M&A process, from target identification to integration. These playbooks should include templates, checklists, and guidelines to ensure consistency and efficiency in executing M&A transactions.4) Conduct Target Screening and Due Diligence
Develop a systematic approach to screen and evaluate potential targets. Consider factors such as financial performance, market position, intellectual property, customer base, and cultural fit. Perform thorough due diligence to assess the target’s financials, operations, contracts, legal and regulatory compliance, and potential risks.5) Financial and Legal Readiness
Ensure that the company’s financials and legal affairs are in order. Have accurate financial statements, clear records of contracts and agreements, and compliance with regulatory requirements. This preparation will help facilitate the due diligence process and enhance the company’s credibility with potential acquirers.6) Develop Integration Planning Capability
Integration planning should start early in the M&A process. Build capabilities in developing integration plans that address key areas such as culture, organization structure, operations, IT systems, and customer integration. Consider engaging external integration experts or consultants to provide guidance and support.7) Build Relationships with Potential Partners
Establish relationships with potential acquisition targets, industry contacts, and M&A advisors. Attend industry events, conferences, and networking sessions to broaden the company’s network and increase visibility in the M&A landscape.8) Obtain Board and Stakeholder Support
Secure buy-in from the company’s board of directors and key stakeholders for the M&A strategy. Communicate the strategic rationale, potential benefits, and associated risks. Develop a clear and compelling business case that outlines the expected value creation and synergy potential.9) Develop Risk Management Strategies
Identify and manage the risks associated with M&A transactions. Have a clear understanding of regulatory requirements, antitrust considerations, and potential legal or financial liabilities. Establish risk mitigation strategies and contingency plans to address potential issues that may arise during the M&A process.10) Continuous Learning and Improvement
M&A is a complex and dynamic field. Foster a culture of continuous learning and improvement by capturing lessons learned from each transaction. Evaluate the success and effectiveness of previous M&A deals and apply those insights to future transactions.Agree with Andreas on his defined process. In returning to M&A after many decades of inactivity, we developed a Playbook that incorporates the following:
1. Define the M&A Program, Mission and Strategic Goals and ensure it is aligned with your Company’s Corporate Strategy.
2. Hire / Train / Contract M&A expertise. (Often the best training program is working through a real-life M&A.)
3. Develop a Playbook to include:
a. Prospecting
b. Customer Communications
c. NOI / IOI / Term Sheet
d. Preliminary Due Diligence
e. Initial Approval / LOI
f. Confirmatory Due Diligence
g. Final Approval / Sign Definitive Documents
h. Execution / Finalization
i. Close Deal
j. Integration
k. Monitor / EvaluationThe key factor for a new comer to M&A is to understand the “why” or the strategic rationale on why the company wants to pursue a merger or an acquisition. Understand the alternative (non-M&A) route is key as well. Once this is cleared, the best way to prepare a company new to acquisitions is to retain a boutique M&A advisory and create a joint team. This way the M&A advisor will not only lead / manage the process of target screening, valuation, DD, negotiation, structuring, help with acquisition finance but will also help build M&A capabilities for the company.
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