Have you considered making an acquisition? Are you actively pursuing a merger? Are you aware of the hidden challenges buyers face?
When it comes to M&A, most acquirers focus only on the transaction itself. But in order to be successful over time, it is critical to have a sound plan that navigates the in’s and out’s of all of the aspects of M&A. At Watermark Advisors, we have created a three-step M&A Audit designed to give you recommendations on how to improve your M&A processes.
The 9 Cornerstones To M&A Success
All M&A transactions should be based on a well-thought out strategic vision. If a planned merger or acquisition is not supported by the company’s corporate strategy it will not work. Plain and simple.
Properly staffing internal and external teams for pre-transaction, transaction and integration work is challenging. Also, costs of sourcing, transacting and integrating an acquisition are often underestimated.
Identifying multiple acquisition targets that align with your company’s criteria is key. Then, digging deep with thorough research and establishing an ongoing list that evolves as needed increases the likelihood of selecting an ideal candidate.
When and how do you connect? Who makes the connection? How is rapport built? In what ways will you drive interest from the seller? All of this matters as buyers and sellers prepare for the transaction phase.
A valuation gap between the buyer and the seller is a key driver in why deals don’t close—and why acquirers never capture desired ROI. Your team must consider applying a discounted cash flow approach; calculating weighted average cost of capital (WACC) and terminal values; making adjustments for liquidity and control; and triangulating between several valuation methods; to name a few.
Synergy between buyer and seller is the foundation for developing a strategy for integration. But with many transactions synergy bias becomes an obsession. In an attempt to stack up incremental value through synergies, acquirers make unwise decisions.
This should never be overlooked. The evaluation of social issues is often estimated with varying degrees of concern or interest, but the future economic impact of these decisions is significant.
Cultural Due Diligence
Culture assimilation is easy to disregard or underestimate but its effects, good or bad, quickly become known following the transaction. It should be a key consideration and driver early on, every bit as important as the financial or market analysis.
Often the most difficult and under-resourced phase of M&A. Areas that impact success include: integration planning, executive leadership, team roles and responsibilities, internal and external communications, HR structure and staffing, cultural assimilation, HR planning, plus measurement and feedback systems.
Step 1: Discovery Session
The first step is listening to you. We learn your goals and objectives for a merger or acquisition through a discovery session with your team and selective one-on-one meetings with members. We conduct a thorough due diligence gathering of facts—including preparation plans and past M&A data. We leave no stone unturned and we consider all relevant variables that could lead to success or failure.
Step 2: Strategic Analysis
Following the Discovery Session, we review the input from your team, your internal processes, and data from every angle. We look at your approach to key steps of each phase of M&A: Preparation, Transaction and Integration. And we examine how you may have conducted any past deals for strengths and weaknesses. We view all of this through the multiple lenses of experience and proven best practices.
Step 3: Findings & Recommendations
The third and final phase in the M&A Audit is the delivery of a comprehensive analysis of your M&A processes, coupled with recommendations. We identify your strengths, weaknesses, potential pitfalls, and most importantly, how you can improve your processes to maximize your return. We will set up a meeting with your core team to share our findings and suggestions, answering any questions you have. At the conclusion, you will have an actionable blueprint for success.
*Source: “Does M&A Pay? A Survey of Evidence for the Decision-Maker” by Robert F. Bruner, Distinguished Professor of Business Administration at University of Virginia Darden School of Business