The U.S. just experienced the most active first half of a year in over a decade for middle-market M&A transactions, with 5,260 deals completed. As more and more companies realize the potential value of mergers and acquisitions, the number will likely only continue to climb. However, as the high number of failed M&A deals in 2016 showed us, not everyone is adhering to the best practices that can make or break a deal.
In our experience at Symmetrical Investments, one of the primary aspects of the M&A process that impedes success is integration – partly because integration is not a “one-and-done” step. There are three major phases to a proper integration plan.
1. Pre-offer analysis
2. Setting the course
3. Post-merger announcement and the first 100-days
Read on to better understand each phase, and how an M&A advisor can help you facilitate a successful deal.
Pre-Offer Integration Analysis
Many companies are now focusing on integration much earlier in the M&A process than in previous years, and that’s a good thing. In fact, you should start laying the groundwork for the integration process long before a deal is ever announced.
The first step you should take after selecting a potential acquisition is to form an integration team of decision makers who will be highly involved in the entire acquisition process. Their job will be to analyze potential acquisitions and make recommendations about how to proceed, starting with a strategic and cultural compatibility analysis.
Strategic compatibility refers to the level at which the two involved companies have similar management structure, administrative processes, resource usage/leverage, customer base, and financial management systems. Cultural compatibility refers to the level at which the two involved companies have similar management styles, values, demographics, geography, and overall attitude.
With an understanding of the synergies between the companies, you can then decide on the level of change needed and speed. Consider the backlash that may be caused by both. There may be employee resistance to a large degree of change or a lack of attention to detail if it is done too quickly. When deciding how to move forward, focus on a formula that minimizes the redundancies between the two organizations, keeps a steady momentum of positive change, and reduces uncertainty among all stakeholders.
Setting the Course
By the time you’ve completed the initial analysis, you should be working with your M&A advisor on preparing an offer, and should take additional steps to prepare for the anticipated transaction.
First, set the course by communicating with your stakeholders and make them feel involved in and assured by the process. Get buy-in among your leadership, so that they can prepare to align with the potential acquisition from the top. Engage your employees to make sure they are ready for the potential changes that lie ahead.
Second, start to create detailed planning documents. Your integration team, including your M&A advisor, needs to formulate your day-one post-merger plan and your first 100-days post-merger integration plan. These plans will serve as a roadmap for every aspect of integrating the two organizations, based on your initial compatibility analysis. Your team should also begin drafting a corporate policy integration plan to ensure that the new organization will have a pre-existing structure codified once it is formed.
Post-Merger Announcement and the First 100 Days
Now that you’ve made an objective analysis, started to draft integration plans, set the course from the top down, and communicated early, you should be preparing to sign the agreement and make the grand announcement. It’s time to execute.
Few days matter as much in the M&A process as day-one post-merger. You can set the tone for a successful merger across the board by starting out with a clear plan for how your company is going to look and act from the start. Corporate leadership should lean on the integration team and the roadmap they created in order to hit the ground running.
Finally, carry out your first 100 days plan, which your integration team created during the planning phase. The experienced team at Symmetrical works directly with the integration team and leadership to help keep the momentum going and ensure that you stay on course.
From day 101 and beyond, the integration should be a self-fulfilling prophecy. With a good plan, your new organization can become a shining example of corporate synergy, leveraging each company’s efficiencies.
If you’re considering a merger or acquisition, it’s in your best interest to get started as early as possible. Here at Symmetrical, we are committed to helping your company identify and secure the best deal it can and integrating as efficiently as possible. Contact us today to get started.
Acquiring a company always involves some level of risk. The best course foundation for a successful investment is a comprehensive due diligence process, which reduces the risk inherent to the transaction, facilitates more informed decision making, and leads to the potential for higher returns down the road. Before you move forward with an offer to purchase a company, it’s important to understand the steps involved in the due diligence process, so that you’re prepared for what lies ahead. Here’s what you need to consider:
Investment Thesis
To start, it’s essential to decide how purchasing a company will make your existing business more valuable? Developing your investment thesis forces you to consider the anticipated outcome of the investment. Outline your strategic goals and map out how this deal will help you achieve them – make sure that you document this in writing. Then communicate this thesis with your team and advisors, so that it’s clear to everyone involved what key components are truly driving the deal.
Competitive Position
One of your strategic goals in terms of the investment may be to boost your position within the industry. But, regardless of whether or not that is a direct goal of the investment, you should analyze the effect that the deal will have on your standing in the marketplace. The value of the deal may be dependent on the growth rate of the company and its current and projected performance. If this acquisition doesn’t strengthen your business’ basis of competition, it may be necessary to reevaluate the deal.
Strength and Stability
To alleviate the chance of failure, you need to thoroughly examine the health of the business – and that includes the potential for growth and its customer base. If its profitability is deemed stable, you need to then consider the strength of the business’ current management. Would its profitability depend upon the existing management to remain stable? It’s also crucial to identify if there is a good cultural fit between yourself and the target company. You’ll want the acquisition to go as smoothly as possible between your teams.
Revenue Synergy
Revenue synergy is achieved when the revenue of the two companies combined (yours and the acquired company) is greater than their individual parts. Determining the potential synergy requires comprehensive research and preparation to accurately project future performance. This is perhaps the most important aspect of the due diligence process. While you gather data, it’s imperative to be realistic and consider potential dis-synergies that would prove unfavorable.
Integration
The final part of the due diligence process should be to outline the appropriate course for integrating the businesses. Even if the deal proves favorable, you could quickly lose value if the acquisition plan isn’t outlined to capture the most value, anticipating potential risks and preparing to mitigate them quickly and seamlessly.
Our team specializes in working closely with middle market mergers and acquisitions. If you want to talk to us about a situation that you are working on, contact us today.