How To Prepare For Merger And Acquisition
Find the company that you want to merge with
It is important to think of mergers & acquisitions as the foundation for a better future for your business, and one of the most critical steps is to learn as much as possible about your potential partner. Although there are many ways that you can increase the likelihood of a positive outcome during a merger or acquisition, such as conducting due diligence, nothing can replace learning about a company by sitting down and talking with the employees.
Make sure you find out all you can about the company before meeting with them. You need to know everything they have done in the past, what their current position is, and what they have planned for the future. Never go into a meeting without having a base understanding of their strengths and weaknesses – research will give you a solid foundation for your initial conversations.
Build a strong relationship with the owners
With mergers and acquisitions (M&As), it is essential to focus on the relationships of the stakeholders. A good M&A process is one that puts these relationships first. Both parties involved in an M&A should be prepared to foster relationships, build trust even before the takeover happens.
Understanding the culture and business setup is also important as let’s say the owners still have a lot of involvement in the company, if they then sell, will this potentially put the future at risk, as their customers are buying into them rather than the brand. If a company already has a relevant good management structure and is run by the employees, then that is a good sign the company has a viable reputation outside of the owners, therefore taking time to discuss ‘who’ the employees are and what they deliver is essential to understand how the company will be run after the M&A is completed.
Determine if the company is stable
So how do you know if the company is stable? Well, the first thing you have to do is check out their financial health.
For any business to survive, it needs to constantly innovate and improve. You can determine whether a company is constantly improving or stagnating by examining its annual report and asking for more information on any warning signs.
Determining whether the company qualifies as “stable” can be quite challenging, but there are some landmarks you can look for. This would start by requesting at least 2-3 year detailed history of the financials (this would preferably by month and at cost centre level) then you can see any large movements in key sales or costs which could indicate one-off or risk areas, that might impact the future of the business.
You also need to review the current balance sheet position, especially large liabilities or debt, as funding companies will be looking at the risk of any lender, so if a company is already highly geared (i.e. have lots of external funding) then this could cause future impacts of obtaining funding, which could be required to ensure you M&A is successful.
Determine what type of deal
There are different reasons an M&A might take place, which could include either fully acquiring a new firm or merging with another:-
Horizontal – Two companies come together with similar products or services to expand the range but do not offer anything new. For example, an accounting firm might merge with a payroll firm so they can offer the services in-house, rather than outsourcing.
Vertical – Two companies join forces but in different parts of the supply chain, to improve the overall logistics, whilst consolidating to reduce costs. This could include examples such as a retail firm buying a manufacturing company or distribution centre.
Conglomerate – Two companies join together (or one is bought by the other) to expand their services but these would be in different types of industries.
