It is an approach used by many of the Iconic and fastest growing businesses in the world including Facebook, who acquired more than 90 companies since its inception in 2004; Google, who has made more than 200 acquisitions since 2001; Microsoft, who has acquired more than 200 companies since 1987; and Amazon, who has acquired more than 100 companies since 1998.
However, growing acquisitively can be a double-edged sword. If done badly, it will destroy shareholder value and could even take your business down. If done well, it will work like alchemy and seemingly create value out of nothing.
Growing acquisitively doesn’t only have to be the domain of large companies, smaller companies can also quantum leap their growth, but this comes with a warning that it needs to be done properly to avoid costly mistakes.
To be truly effective at growing acquisitively you need to build a strong M&A capability, which involves building a dedicated and skilled M&A team tightly integrated into your management team and running a first-class acquisition process, including some of the good practices as set out below.
1. Assemble the Core Team
a. Buy-Side Advisor/Investment banker:
The Buy-Side advisor plays a pivotal role in guiding the overall process. They are the conductor that oversees and coordinates all the pieces in the puzzle. They have an in-depth knowledge of market conditions, valuation expertise, and negotiation skills. They have a network of potential buyers and sellers and professional advisors, such as the tax and legal experts, and will assist in structuring the deal optimally.
For small to medium sized business this role will usually be outsourced.
b. Accountant and tax advisors:
An experienced accountant is crucial for performing a thorough financial due diligence. They scrutinize the financial position and results of the target company; delve into high-risk areas such as revenue recognition, value of PPE, debtors, and inventory; and they identify potential financial risks to name a few areas of focus.
The Tax advisors would do the due diligence on the target’s taxes to ensure there are no tax risks, they help understand the tax implications of the deal and determine the optimum deal structure from a tax point of view.
c. Lawyer:
A lawyer specializing in M&A is essential for navigating the myriad of legal complexities in the world of M&A. They would handle the legal due diligence as well as draft and review contracts and ensure compliance with all regulatory requirements.
d. Internal Management Team:
Having a M&A team that concludes a deal and only then involves your core management team is a recipe for disaster. Your core management team should be an integral part of the acquisition as they have the best industry knowledge, they provide insights into the strategic fit of the acquisition, and they are the ones that will have to implement the deal and integrate the acquisition into your business.
This team should include all your top executives such as the CEO, CFO, IT and HR, to name a few.
2. Incorporate Specialist Roles
a. Industry Expert:
An industry expert, preferably from within your company, will provide valuable insights into the market dynamics and competitive landscape of the industry in which the target company operates.
b. IT Specialist:
In today’s digital age, IT systems are crucial, and can become a big issue when trying to integrate the businesses. An IT specialist can evaluate the technological capabilities of the target company and assess the integration requirements for the target. The earlier they are involved the better.
c. HR Specialist:
Human resources are often overlooked in M&A and, the quote attributed to Peter Drucker that “Culture eats strategy for breakfast” is telling. The biggest single reason for an acquisition to fail is an inability to integrate the culture of the acquiror and acquiree.
An HR specialist ensures that talent and cultural aspects are considered, which are key to a successful integration, and the sooner they do that the better.
3. Establish Clear Communication Channels
Clear and consistent communication is essential for an efficient M&A process. Establishing regular meetings and updates ensures that all team members are aligned and can address emerging issues promptly.
4. Define Roles and Responsibilities
Each team member should have a clear understanding of their roles and responsibilities. This clarity avoids overlap and gaps in the M&A process, ensuring that all aspects of the deal are adequately covered.
5. Ensure Flexibility and Adaptability
The M&A process can be unpredictable. The team should be flexible and adaptable, able to respond to new information and changing circumstances quickly.
6. Prioritize Due Diligence
Due diligence is the cornerstone of any M&A process. Ensuring thorough commercial, financial, legal, and operational due diligence helps to accurately assess the value of the target and identify potential risks.
7. Focus on Post-Merger Integration
Successful M&A is not just about closing the deal, at its core it is about effectively integrating the acquired company and ensuring that the synergies identified are realised. Unless purposefully managed, integration of the newly acquired businesses won’t happen and the synergies identified won’t be realised.
The best way to ensure a successful acquisition is to ensure that the operational team is part of the acquisition process as early as possible and is tightly integrated with the M&A Team. The management team is invariably the one left holding the baby after the deal is done.
In conclusion, building a strong M&A team is a strategic process that requires careful selection of diverse experts and a clear definition of roles and responsibilities. A well-structured and collaborative team, following best practice, can navigate the complexities of M&A, driving successful outcomes and adding significant value to your business.
Remember, the strength of your M&A team and use of best practice can be the deciding factor between a deal that adds substantial value to your company and one that fails to meet its objectives.