According to Refinitiv data, global Merger & Acquisition (M&A) activity hit new highs in 2021: 24% more deals were announced in 2021 compared to 2020, pointing to a strong market for consolidation and growth in the years ahead.
Unfortunately, while M&A activity can be extremely beneficial in the right circumstances, it can also be extremely disruptive, problematic, and confusing for business leaders.
Today, I’m going to be taking you through a comprehensive 5-step Mergers & Acquisitions checklist to help you make the most of any upcoming M&A activity in your company.
First, however, let’s take a closer look at what M&A are.
4 Types of Mergers and Acquisitions
M&A deals either bring two companies together to form a new, larger organization, or involve the purchase of one business by another. Months or years can be spent on one of these deals, particularly during the process of initial research and investigation for “due diligence.”
Companies merge and acquire other brands for a host of reasons. From strategic alliances designed to strengthen marketplace position to hostile takeovers, there are many ways organizations might join forces. The four common forms of mergers and acquisitions are:
- Horizontal merger/acquisition: A horizontal merger/acquisition is when two companies come together with similar products or services. When merging, they expand their range, but they might not do anything new. For instance, when HP purchased Compaq Computers in 2002, they created a more powerful PC brand by combining the portfolios of both companies.
- Vertical merger/acquisition: In a vertical merger or acquisition, the two companies joining forces are in the same industry, but at different points on the supply chain. Vertical integration allows for the consolidation of staff, logistics processes, and go-to-market strategies. For instance, a clothing retailer might buy a clothing manufacturer.
- Conglomerate merger/acquisition: In a conglomerate merger/acquisition, two companies in different industries partner, or one takes over the other, in order to broaden a selection of services and products. For instance, a company selling cars might purchase a company in the boat and sea vessel manufacturing industry.
- Concentric merger/acquisition: In some cases, two companies offer different services but share customers. A merger or acquisition in this case helps to increase the available solutions from one “larger” company for the customer. For instance, a good example is when Sony (an entertainment system manufacturer) purchased the Columbia Pictures movie studio.
Mergers and Acquisitions are proven tools for growth, allowing for the increase of market share and opportunity. However, they’re also incredibly time-consuming, effort-intensive, and there’s a decent amount of risk involved, too.
For instance, when Disney purchased the Pixar and Marvel companies, the acquisition eventually led to a much larger, more successful Disney brand. But the growing pains of the initial stages of Disney’s acquisition led to a number of problems, over a number of years, including issues with accessing certain properties.
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5-Step Mergers and Acquisition Checklist
Mergers and acquisitions can allow two companies to cut a number of costs, increase profitability, and unlock new opportunities.
The process, though, peppered with potential issues, requires a lot of careful planning. Due to the demanding requirements, mergers and acquisitions unfortunately have quite a high failure rate. About 47% of deals fail due to operational or financial issues that come up during the due diligence stage, and around 57% fail as a result management issues or simply a lack of fit.
Here are my five steps for ensuring that you don’t end up as one of those many M&A failures.
✅ Step 1: Discover Your Needs
The first step is researching your needs and deciding on a specific goal for your M&A activity. A merger or acquisition is too much work to go throughout without a way to track and ensure its success. Let’s look at a recent acquisition I dealt with in the MarTech space.
Before the M&A, we were thinking about how to better serve our current audience. We asked ourselves, “What kind of acquisition or merger would help my audience grow faster and serve our current customers better? What would be relevant to our current product/service offering, and what kind of capabilities or features should we be looking for?”
✅ Step 2: Finding Opportunities
Once you know your goals for your merger/acquisition strategy, you can start looking for potential opportunities. There are various ways to source potential M&A deals. You can explore investment banks, online platforms, and even trade shows or conferences. You might even choose to work with a broker if you’re looking for something very specific.
Remember, when choosing the right opportunity for your company, due diligence is key.
Crucially, it’s also important to think about the issues you might face along the way. If the company you’re thinking of buying is a good fit for your target audience, will it be a good fit for your existing team, too? How easy is it going to be to integrate your two teams and align your product portfolios?
Make a list of the must-have components of your merger and acquisition deal before you pursue any opportunity further. For instance, do you:
- Need to continue using the same employees you have today?
- Want access to a specific number of new shareholders and board members?
- Have specific requirements about how your products are branded?
✅ Step 3: Making the Offer
Once you’ve found targets for your deal, and you’ve begun talking to people, you can send something called a Letter of Intent. This is something I always recommend for any M&A deal because it essentially locks you into the inquiry for a specific period of time – usually between 30 and 90 days.
With your LOI (Letter of Intent), you initiate a conversation where you can begin negotiating and exploring potential opportunities. It’s important to engage in a significant amount of communication during this process. You need to discuss everything, from how your teams are going to work together, to how you’re going to connect your products or services.
This is the time to really dive into your due-diligence process and learn as much as you can about what you’re getting involved with.
Failure to do the right amount of research here is one of the main reasons mergers and acquisitions crumble.
✅ Step 4: Connecting with Your Teams
This is when you decide who’s going to be responsible for what in your newly created company. During the conversation period when you’re “making the offer” and conducting your due diligence, you’ll be agreeing on terms and coming up with ideas on what’s going to happen next.
However, actually bringing your two companies together will often be a lot more complex than you’d think. Perhaps the biggest issue, in my opinion, will usually be connecting with your employees. During the M&A process, your staff members are going to be concerned and confused. They need to know exactly what’s going to happen going forward.
Before you do anything to fully close the deal, you should create a kind of presentation for your internal teams. Have a discussion with your employees in which you highlight the benefits of the merger and acquisition process – not just for your bottom line and profits, but for your individual staff members, too. You might not be able to get your employees excited about the prospect of change, but they should at least be comfortable with the idea.
✅ Step 5: The Integration
The integration is the most complicated part of the full Merger and Acquisition Process. In today’s digital world, “integrating” your people, processes and products might not mean actually bringing people together in the same office. Instead, you might be hosting a number of video meetings where you’re introducing staff who are going to be working together or forming the foundations for conversations about new products and services.
Remember, during this integration process, the focus should be on making things as smooth as possible for your team. Answer questions as transparently as you can about what’s going to happen with different job roles, and what the long-term vision of your company is going to be after the merger or acquisition is complete.
Getting the integration right usually takes a significant amount of time and effort. Even if a lot of your staff members have the same values as the company you’ve merged with or acquired, there are going to be some natural growing pains.
If you can integrate your teams correctly, you can also significantly increase the ROI of your merger or acquisition process.
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Approaching the M&A Adventure
One thing to keep in mind when you’re moving through the five steps mentioned above is that there isn’t a specific timeline for when your M&A process should be “done.”
A lot of companies assume they’re on a specific timeline with these things – and it can certainly feel this way. When you’re keen to grow and move to the next step with your business, you don’t want to be spending years in the “integration” phase. However, rushing ahead and trying to do too much too fast can be problematic.
Take your time and be prepared to learn, back-step and even readjust your strategies as you go. Mergers and Acquisitions can be extremely complicated.
Need more help with your business growth strategy? Subscribe to my YouTube channel for advice, tips and cutting-edge insights.
This topic originally appeared on the Leveling Up podcast.
