6 tips for successful mergers & acquisitions
Entrepreneurs look for opportunities to expand their footprint in today’s ever-evolving realm of global businesses. Many have penetrated new markets, whereas others keep extending their product line to cater to the masses. But mergers and acquisitions (M&A) are the only way to unlock the company’s true potential when it comes to propelling business growth.
Recently, mergers and acquisitions have emerged as a strategic initiative for companies seeking growth and market expansion. It enables business owners to benefit from operational synergies and enhance profitability. However, the pace of mergers and acquisitions dealmaking has slowed due to geopolitical conflicts and inflation. But at the same time, these market conditions have increased the number of businesses looking to acquire and merge. Thus, this is an ideal time to work on your merger and acquisition strategy.
Even though the journey towards a successful M&A is complex and demands thoughtful execution, it fosters value for the business. If you are unsure where to begin, let us take you through a comprehensive guide to navigating the M&A process. Here we have outlined six tips for successful mergers and acquisitions.
1. Dig into the financials
The most crucial aspect of any M&A contract is the financials. Besides the acquisition price, all transactions require apt financial management. Therefore, you must begin with a comprehensive plan covering the accounting principles and financial reporting standards. Likewise, examine the company’s financial statements and cash flow patterns to determine the net worth. More importantly, identify the financial risks that could impact the business post-merger.
Moreover, assess the investment portfolio to ensure the combined entity has sufficient liquidity to survive without acquiring debt. Most entrepreneurs decide to study numbers themselves, but it’s best to seek an expert’s help. You can get M&A advisory from a reputable firm like Objective, Investment Banking & Valuation to understand the company’s financial situation better. These experts will also help allocate resources and budget effectively post-M&A, maximizing synergies.
2. Evaluate goodwill
Alongside the company’s solid financial standing, business leaders give immense importance to its goodwill. It is an accounting concept representing the intangible value of a company’s brand recognition, skilled workforce, and favorable supplier relationships. In short, it is the reputation a company has built over time. Since the acquiring company will be taking over a well-reputed company, it must pay a price for goodwill.
Mathematically, you can calculate it as the difference between the purchase price and net identifiable assets acquired. But in the practical world, leaders compare the market price with the company’s fair value of the assets. Any difference is the price that must be paid as goodwill. Remember, the higher the goodwill, the more reputable the company. However, you must test goodwill for impairment. It ensures the value of goodwill being paid by the acquiring company accurately reflects the acquired company’s performance over time.
3. Assess culture compatibility
Cultural compatibility is one of their primary concerns whenever business leaders opt for mergers and acquisitions. What if the employees are unable to adjust to the new environment? Culture influences how employees think, behave, and work together, making it a critical factor in determining the success of M&A. Thus, every entrepreneur must unify employees through the culture by aligning the cultural values and norms of both – acquiring and the parent company.
Begin by assessing both organizations’ existing cultures and list the communication style and employee values. It will enable you to identify areas of potential differences. Next, encourage leaders to model the desired behavior and values to promote cultural integration. You can also appoint cultural ambassadors to bridge the gaps and share insights. Lastly, focus on providing cultural training to employees to help them adapt to new cultural norms. It can include workshops and seminars, ensuring all employees are on the same page.
4. Create an integration plan
An integration plan is a blueprint that outlines how the merging entities will combine their resources to achieve intended synergies. Here is what you can include in the plan.
- Define the primary goals and objectives of the merger or acquisition. You can explain what it aims to achieve. It could be market expansion, cost savings, or higher profitability.
- Identify the cost and revenue synergies like operational efficiencies, cross-selling opportunities, and massive customer base.
- Make a list of integration tasks and break them into smaller segments based on their importance.
- Allocate a timeline for the entire integration process to wrap it up timely.
- Define the roles and responsibilities of leaders and managers overseeing the integration.
5. Focus on talent retention
Truthfully, retaining talent is a crucial aspect of any M&A deal because the loss of critical employees can disrupt operations. Leaders must ensure that valuable talent remains engaged and committed throughout the integration process. For this, you must clarify employees’ roles in the organization to make them understand their place post-M&A.
You can also offer retention incentives such as bonuses or stock options, motivating them to contribute to the company’s success. Likewise, you can provide opportunities for skill development to eliminate their concerns about career stagnation. These few strategies will keep the employee retention rate high, ensuring the successful integration of the combined organization.
6. Develop a communication plan
Often mergers and acquisitions are challenging and perplexing for employees. Some worry about losing their jobs, whereas others fear the changes at the managerial level. To curb this uncertainty, communication is the key. Entrepreneurs should openly communicate the reasons for M&A, its limitations, and the potential benefits. Similarly, remain open to feedback by creating channels where all stakeholders can raise their concerns and ask questions.
Furthermore, clearly define the objectives of each communication, whether you are seeking input or providing information. After all, the purpose is to address employees’ concerns about career growth, role changes, and job security. Keeping communication lines open will build employees’ trust, fostering a positive attitude toward the merger and acquisition process. In addition, it also reduces the spread of rumors which impacts morale and performance.
Final thoughts
Undeniably, navigating the intricate landscape of mergers and acquisitions is challenging. Entrepreneurs must develop strategic clarity, identify synergies, and critically analyze financials. Likewise, they must inform and educate their team about the M&A to ensure everyone is on the same page. The merging of two companies is more than a financial transaction; it is an endeavor that requires a balance of business acumen, people management, and adaptability to be a success.
