Knowing Your Readiness for a Merger or Acquisition
Mar 18, 2021
The process of acquiring or selling a business, or merging it with another, is complex and sometimes arduous. While very different processes are involved for a company doing the acquiring vs being acquired, there are some similarities every organization should consider. Read on to explore some of the key considerations that go beyond the dollars and cents.
Preparedness for Merger or Aquisition
There are three stages to consider as a company prepares for an acquisition.
- Search and Identification
- The Transaction
- Integration and Value Creation
Search and Identification
In this stage you’re finding the right fit for acquisition or merger. This connects to your goals and strategies and understanding how this steps help you achieve them. This involves a lot of analysis and scrutiny, and it’s critical to have your house in order. Accurate financial reporting and credible, believable metrics are essential. As a buyer, you need confidence in what you’re buying. As a seller, you want your value to be understood and appreciated.
Let’s use an analogy of buying a new home. Your most obvious questions are often more technical, like understanding what can you afford or what kind of financing is available. Then you start exploring: are you willing to spend less for a fixer-upper? Is this an investment property or do you want to live here? What are others paying for similar homes?
If selling, you’re establishing a realistic asking price and understanding the market around you. You tidy things up – a fresh coat of paint, repairs or renovation. You want your house to be the most appealing.
Transaction
The people involved in due diligence are key components of negotiation for a merger or acquisition. What do all the numbers really mean? Do both parties see them the same ways? A disorganized or unsophisticated company can make it hard for people to move ahead with confidence. Team members who don’t have a strategic perspective, from either the buyer or seller’s point of view, can limit the scope of understanding. What intellectual property is possessed? What talent will be or won’t be part of an acquisition? How do these factor into what a company is worth?
In our home-buying analogy, now you have agents or representatives talking to each other. Inspectors are bringing any issues to light, possibly for negotiation. Bankers get involved and establish positions. Buyer and seller alike are asked for a lot of information to better understand their intentions and finances. Sometimes things get tricky and one party or another pulls out, even at the last minute, because something doesn’t make sense or something falls through.
Integration and Value Creation
In the heat of number crunching and deal making, the consideration of what will it be like to live together sometimes gets a lower priority when, in fact, it should be among the top concerns.
If you’re buying a home to live in, what is the neighborhood like? Will the schools work for you? Is to close enough to work or does it increase your commute time? How’s the backyard? This is the stuff of living in the house, that goes beyond the finances or economic sense. Nobody wants to go through the sometimes exhausting process of buying only to find out later they should’ve asked more about the troublesome next door neighbor. Or, nobody wants to sell their house only to get a call from a lawyer asking why problems with the furnace weren’t disclosed.
Understanding the People Perspective
What if, when you move into a new home, you’re moving into a home where three other families already live there together? Imagine learning to live with new personalities, understand new habits or preferences.
When a company buys another, sells to another, or merges, there’s usually a combining of workforces. Sometimes this leads to layoffs if there are redundancies. Always there’s a significant adjustment. In many ways the people most impacts are people who had no or little say in the transaction – rank and file employees suddenly dealing with new people, processes or systems.
How talent feels about and is impacted by a merger or acquisition can make or break an entire deal. Everything that looked great on paper has to make sense to the people running the processes, making the sales, distributing the goods, manufacturing the stuff. If morale sinks, if turnover increases, or if high profile talent that’s acquired is frustrated it can devastate a deal.
Summing Up
Going deeper than strategic imperatives and key performance indicators will help you have confidence and excitement in how acquisition or merging can help your company succeed in the future. Remember to consider your people perspective. Get buy-in early by involving your team in the thinking behind decisions. When you combine a successful integration with thorough due diligence on the the right company, acquisition can be a smooth process.
