This past year has been an unprecedented year for the mergers and acquisitions (M&A) space, hitting $5 trillion in volume in 2021 through over 40,000 transactions. The number of transactions in the distribution and manufacturing space has caused owners to take a closer look at their options regarding selling and/or acquisition options. Since the market has been hot, it is now a great time to think about your company’s future and develop a plan for the next two to five years. However, almost 50% of M&A deals fail to deliver on their promised value. During this piece, we will discuss the possible challenges and shortcomings that buyers face, and what they should keep in mind throughout the process.
WATCHLIST OF TARGETS
One of the first steps for an acquiring mind is to create a watch list for acquisition targets, similar to a stock watch list. Most of the time, companies fail to have a proactive acquisition strategy. While CEOs, upper management and bankers can be fixated on negotiating the price, it is of utmost importance to diligently staff an acquisition team (legal, valuation experts, banker, etc.)
Buyers who are successful know exactly what type of company they want to acquire and why they want it. The "why" usually fits in with their overall strategy and whether the business will be a platform or a bolt-on for an existing operation. Successful buyers also have a strict due diligence phase to test their theories on how the acquisition will create value. The buyer must ensure that their valuations are realistic and that there are tangible attributes of the company that can be easily integrated with the current operation. If this acquisition fits the overall strategy, buyers can move on and begin integration planning.
Secondarily, it is important to keep in mind that the buyer should make early integration a top priority. This is key for a smooth transition when acquiring a new subsidiary for your company. Inherently, acquisitions create something new for your business and employees and it is rare that a decision is a “no-brainer” when going through the process.
Buyers of existing businesses may run into all types of issues they have never had to encounter before. These unrecognizable challenges can go from implementing new systems (ERP systems or CRMs for example) all the way to what happens with scheduling employees and the vacations they can take. During the transition, leaders must clear up any variability with the structure of the deal, the timing, and the necessary decisions for a solid first day. This may include creating management and employee transition plans to ensure efficient knowledge transfer. This will make an effective transition and operation of businesses as employees move into their new roles.
Combining two companies into a single, better company is a tall task. It takes commitment, accountability, responsibility and clarity for the employees so they can be adequately prepared for the transition.
CULTURE AND HUMAN RESOURCES
The third aspect of acquisition a buyer should keep in mind is making sure that you manage the culture and human resources of both entities when dealing with the change. Combining two companies into a single, better company is a tall task. It takes commitment, accountability, responsibility and clarity for the employees so they can be adequately prepared for the transition in how the business operates and how work is to be done. The buyer should understand that he is working for employee trust that he hasn’t necessarily earned yet. Going through with a sizeable transaction means that you have the obligation to motivate your leaders and build that necessary trust with employees and brand-new customers.
The last thought I have for a business buyer is to influence your employees to succeed through focused action to aid the transition. Any acquisition or sale of a business has significant risk. Understanding all the moving parts sounds like a daunting task but it is necessary to create a vision that employees can get behind. Post-deal integration requires consistent, focused actions carried out by leadership from the beginning to help fuse the businesses. Following these tips and bringing them all together will help you succeed through the complexities of the merger.
Mergers and acquisitions have been a proven and valued tool to help fuel growth and unlock value that couldn’t be achieved through organic growth. In a discussion with a successful wholesaler that has grown through acquisitions and through organic growth, he said it takes an average of four and a half years to break even through opening up a branch. Therefore, growth through acquisition should be an option that a company should look at very closely when looking to expand. With that being said, in today’s volatile market, deals cannot simply be finished after a handshake and further action is required both before and after the sale to ensure a frictionless transition.
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