How to successfully execute an M&A transaction
Before we get into transaction advice, be aware that:
M&A is highly complex and inherently laden with risk.
Most of the value from an acquisition can only be unlocked after completion through a successful integration – the transaction is just the tip of the iceberg.
Although acquisitions can be transformational, it is imperative not to take your eye off the ball with regard to your own business’ trading.
Here are our top tips for owner-managers executing a transaction:
Do your diligence: performing a deep analysis of the finances, legal standing, commercial aspects and operations of your target is a must. Through the diligence process you should be thinking about downside risks, highlighting liabilities and identifying weaknesses. Financial due diligence should analyse the trading performance of the target and give an assessment of its value and financial health. Legal diligence should confirm that the acquirer will not be taking on any material legal risks as well as evaluating the contracts in place with suppliers and customers. Commercial and operational diligence will give you the chance to assess how the target is run. You can then start thinking about how the acquisition fits with your business, whether there are any new capabilities you will gain or whether there will be any synergies from the transaction.
Seek expert advice: while ownership of the acquisition decision should always rest with you, getting assistance with M&A can be helpful. Many aspects of due diligence are best carried out by expert advisors. Typically, an accounting firm would conduct the financial diligence while a law firm would handle the legal diligence. While experts are indispensable for providing advice in those particular domains, M&A advisors such as business strategy consultants or corporate financiers could also be helpful. An independent expert who can test your hypotheses and M&A rationale is worth their weight in gold (psst we can recommend a good one!).
Don’t bite off more than you can chew: both on a business and a personal level. Will your business be able to ingest another or are you fighting too many fires in BAU? Are good and scalable processes and systems in place? Is the business appropriately resourced and healthy financially? On a personal level, think about whether as an owner-manager you have the capacity to manage a transaction on top of your day job. Transactions can stretch on for many months and it is important to maintain a clear mindset throughout.
Communicate with all stakeholders: this is crucial to retain trust in your organisation and win loyalty in the acquired business. You cannot over communicate. M&A can create anxieties amongst staff and customers. Employees may fear job cuts while customers may see the transaction as a disruption to the service levels they expect. Clear and honest communication can mitigate a number of these problems.
M&A is high risk, but also high reward: it can massively accelerate growth. Fordhouse specialises in backing acquisitive companies and providing world class resources to execute deals, integrate operations and grow leading businesses.