1. Recognize the Right Conditions
- Organic growth has stalled, but your cash flow is healthy, your treasury is well stocked, and you have excellent access to credit.
- You have the inside track on a friend retiring from a business, and the opportunity has synergies that fit.
- A competitor is bordering on bankruptcy, and you don’t want to compete in the trustees auction.
- A colleague with synergies in a different geographic region also wants to scale.
- Your sector is under pressure from larger rivals with deeper pockets.
2. Assess the Need
M&A is not something you do off the side of your desk or because someone in your organization suggests it’s a good idea or the latest trend. It is a means to a previously defined competitive strategy requiring conviction. You can ask a few simple questions to get things started such as:
- Why do we think we can win in this space?
- What are we going to do?
- Why us?
- Why now?
3. Keys to Success
- A clear and detailed vision of what the “Newco” can generate regarding operational and financial synergies.
- Companies <$10m in revenue, do not necessitate the guidance of an Investment Bank or a large advisory firm. However, you should have a blend of management consulting, accounting, and legal advisors.
- Test and be honest about your motivation for participating in M&A and do not succumb peer pressure
- Ensure your convictions are solid and avoid at all cost, treating M&A as an adjunct business strategy.
4. Methodology
- Develop and or adopt a critical path and follow it carefully.
- Begin with the end in mind, which means determing the likelyhood of post merger integration from deal success. This also means pre-determining an integration leader and method that won’t disrupt the existing business.
- Signing of NDAs and non-competes upfront. The NDA is obvious but the non-compete protects you from your target going elsewhere prematurely.
- Set reasonable deal milestones that balance speed with thoroughness. *
- Implement a rigorous and collaborative due diligence process that includes the use of a reputable Virtual Data Room for storing documents. (VDR) **
- Accept well in advance that your days will be longer so that you stay focused on your core business while simultaneously.
Benefits
- Improve growth rate, earnings, size, and competitive posture.
- Operational synergy and improvements through talent acquisition.
- Improved financial strength, assuming of course reasonable debt obligations by both parties are the norms.
- Diversification of risk.
*For a comprehensive list of significant legal and business due diligence activities you must consider, go to a fantastic article by Richard D. Harroch, David A. Lipkin, Richard V. Smith and John Cook. https://bit.ly/2E3w7wB.
** I highly recommend Firmex. It’s a VDR clients and I are currently using with great success and satisfaction.
