Mergers and acquisitions are commonplace in the corporate world, but there are many underlying factors that can make a difference between a successful company merger and a failed venture.
The year 2019 saw a staggering record of more than 50,000 deals that were together valued at $3.5 trillion. Although the COVID-19 situation will likely affect the number of mergers taking place in the year 2020, thousands of companies will be announcing their intentions to unify.
When contemplating a deal, it is critical to remember that between 70 per cent to 90 per cent of mergers and acquisitions are likely to fail. Various factors contribute to problems during the final steps that lead to the deal falling through.
As a business owner, if you think that integration is essential for the continued success of your company, you’ll want to ensure that the merger progresses smoothly. Here are some of the main factors to keep in mind for a successful company merger.
1. Identifying your goals and objectives clearly
At the time of planning your M&A strategy, identify your goals and objectives. Remember not to lose sight of what you are hoping to achieve.
Analyze the competitive standing you’ve created for your company and use that to consider where the venture is headed. Explore whether you hope to increase your market share or whether you are more interested in entering new arenas that complement the industry where you work.
Will the company acquire new products, intellectual capital, or advanced technologies? Can you successfully eliminate a competitor, raise the scale of business operations, or achieve vertical integration with new product lines? How likely is this deal to result in a successful company merger?
Once the objectives are clearly outlined, you’ll be in a better position to screen the prospective business you are hoping to merge into your own. You’ll also conduct the due diligence necessary to safeguard the interests of the company you’ve worked hard to build.
2. Choosing the target business for the merger carefully
Vetting the target company for the merger is a critical task and it is advisable that you screen every aspect carefully.
Contact the partnering business’s customers and clients to find out about their experiences. Explore whether the customers were happy with their contracts and purchases. This information and any reviews will give you valuable indications about the future viability of the business.
You’ll also learn about how operations are managed and if the company is committed to providing quality products, great customer service, and value for money.
3. Assessing the financial health of both companies
Take the time to evaluate the financial health of the targeted company. Bring in an expert accountant to study financial statements like profit and loss statements, balance sheets, debts and liabilities, assets, and liquidity.
Preferably, ask for documents dating back to five, or even seven, years. Typically, liquidity is highly essential for a successful company merger and to carry the potential expenses of the integration.
Also, check if your company’s capital structure can withstand the strain and costs related to a merger. If you are not quite sure, explore the debt and equity capital funding approaches you can adopt for a robust balance sheet.
When checking your potential partner’s books, make sure to look out for tax liabilities and any inconsistencies in accounting that can lead to problems in the future.
Considering that 75 per cent of economists predict a severe recession by 2021, make sure that your company will emerge stronger from the deal. If the integration is likely to improve economic prospects and bolster the business’s future, move forward with the deal.
4. Making sure your stakeholders are on board
For a successful business merger, the most important factor is the support of the people involved in the company.
You’ll want to make sure that all entities are convinced about the feasibility of your decision starting with the stockholders, employees, and customers, to every tier of the management. You’ll take the time to convince everyone that the merger is essential and will help in securing the company’s future.
Talk about the vision you have and the new venture’s long-term mission. Understand that investors are concerned about their profits and customers are wary about how the new ownership might affect the products and services they purchase. Or, their dealings and contracts with the new venture.
Employees are likely insecure about having a job in the new business. This factor is understandable because you’ll likely let go of some workers when restructuring the company.
5. Putting together a transition team essential for a streamlined integration
Regardless of how well you planned the integration, the transition is challenging and painstaking. Considering the many aspects you’ll have to sort, it is advisable to have a team assisting you through it.
Bring in professionals who can assist with the financials, legal, organizational, and operational ramifications. Having a human resources expert is also helpful because you’ll deal with the core dynamic resource of your company, the employees.
You’ll need help with identifying the key talent that you absolutely need for moving forward and making difficult decisions about who to keep and fire.
Rely on the senior management’s expertise to help you make the right choices. The most critical task of the transition team is to coordinate changes in both companies so that the culmination is a successful company merger.
Aligning the expectations from the stakeholders on both sides will ensure that all procedures take place efficiently with minimal costs and wasteful expenses.
6. Staying focused on maintaining the key values of your company
When trying to execute a successful company merger, remember not to lose sight of the key values of your company.
You’ve likely developed certain processes and business plans that are highly efficient and bring you rich returns. Maintain these operational strategies and prioritize customers, vendors, and employees.
Focus on creating an integrated culture that brings in the best of both businesses and eliminates the roadblocks that were getting in the way of expansion and future success.
You’ll also want to stress the speedy completion of the integration process. Delays cost valuable resources that you should be minimizing, at this point.
7. Maintaining transparency and communication
Once you finalize your decision to go ahead with the merger, communicate your intentions to all the concerned entities in both companies. Unconfirmed information and rumours foster uncertainty and result in stakeholders losing confidence in your leadership abilities.
Deal with every challenge efficiently and with careful regard for the inconvenience caused to the people involved. Avoid the possibility of ill will by responding quickly to concerns.
You could also consider compensating employees and clients for their continued confidence and patience through the merger.
8. Expecting accountability and adherence to milestones
Partnerships and integration are difficult processes and take a lot of hard work. But for a successful business merger, it is essential to set up milestones and adhere to the expected time frames for achieving results.
Hold your team and managers accountable for the goals you set for them complete with incentives for delivering on schedule. As a result, you’ll establish the values, principles, and overall tone for the future functioning of the business.
Company mergers and integrations can be complex processes. But, with optimum planning, you can achieve a successful business merger that has the potential for future growth and expansion.
Due diligence is essential to ensure that the partnering company is properly vetted and you are aware of any potential roadblocks you could encounter.
Keys to Successful Mergers and Acquisitions
What makes a successful merger and acquisition? Here are the keys to a successful company merger or acquisition:
- Identify your goals and objectives clearly.
- Choosing the target business for the merger carefully.
- Assessing the financial health of both companies.
- Make sure your stakeholders are on board.
- Putting together a transition team essential for streamlined integration.
- Staying focused on maintaining the key values of your company.
- Maintaining transparency and communication.
- Expecting accountability and adherence to milestones.
Blake Taylor is the Managing Director of Synergy Business Brokers. Blake has over 16 years of experience as a Business Broker and M&A Advisor, and 30 years of business experience including growing a start-up company as a VP of Sales and Marketing and working for Fortune 500 companies.
