For companies seeking fresh technology and talent—or hoping to navigate their way to new markets—mergers and acquisitions (M&A) can be a great, effective option.
Yet the process can also be fraught with pitfalls: In fact, according to Boston-based consulting firm Bain & Company a staggering 70% of mergers fail to increase shareholder value.
So how can you prepare for a successful merger?
The following 5 tips can help:
Get to Know Your Potential Partners
As with any relationship, moving too fast too soon can lead to pressures and oversights that would not otherwise exist. Is the culture and resources of a given company really and truly a good match for your own?
There’s only one way to find out: Do your due diligence. Research the company. Talk to its employees and clients. Reach out to your own mentors and advisors—legal, financial, etc.—for advice and recommendations. And, of course, check the financials.
Capitalization. Revenue. Stock history. IT and security infrastructure. Outstanding debts. Liquidity. These are just a few of the factors that come into play during an acquisition.
The truth is, there’s a lot of moving pieces when it comes to the financial end of the M&A process—and it is absolutely essential that you have a full understanding of the lay of the fiscal land before moving forward. So keep those lines of communication wide open. Dig deep. Ask to see the books and, of course, provide them yours if they make the same request. The path to a profitable future begins with a solid understanding of and engagement with the foundational information about both companies.
Settle on a Fair Valuation
Each side is going to have a different idea of what is a fair price for the target company. The buyer is going to want to pay the lowest price they can get, while the seller is obviously going to want to get the highest price they can. Start by looking at the valuation for similar companies to help you set a benchmark that both sides can work from. Your legal and financial teams can help you negotiate the valuation to come up with a fair price that is acceptable to both parties.
Set the Tone
Strong, forward-thinking leadership is always a boon to any company, but during an M&A deal the impact of a visionary, positive example emanating from the top becomes all the more heightened—and in some cases game-changing.
Help your team see the same potential and value in a proposed deal that you do. That requires you to set the highest possible degree of transparency, establish benchmarks and intentions, and never treat the process as one that exists solely outside of everyday company actions. Leverage your internal and external communications teams to create a plan for how to convey the acquisition and the vision behind it.
Keep Faith with Employees
The same approach goes for the business you are acquiring as well – communicate to employees the vision you have for what the business looks like post acquisition.
Uncertainty, after all, can lead to an exodus of talent and institutional knowledge. And while some talent loss is to be expected, you can minimize it by providing clear avenues and opportunities for employees of both entities to discuss the merger and bring questions to the leadership team. It also helps to educate employees on who you are as a company so they can see where the businesses align.
After proper analysis, consider creating a transition program that helps employees move into new roles. This can reassure your workers that they will not be forgotten in the transition and a degree of flexibility will be available to them under new management.
Done right, a merger should create opportunities and efficiencies for the new company and its blended staff. By remaining conscientious and deliberate throughout the process you’ll increase the chances of success—not only during the deal-making phase, but for years to come in the marketplace.