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4 Tips on How to Create a Successful Merger or Acquisition

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4 Tips on How to Create a Successful Merger or Acquisition

Business mergers and acquisitions can be considered as an effective strategy for bottom line growth. Their deals make the world go round and with time, deal values and complexities increases consistently.

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There are plenty of reasons for a company to decide to merge with or acquire another company. Some may do it in order to get rid of competitors, while others create value for their businesses by gaining new customers, boosting business productivity, and expanding into new markets, which are all possible through this strategy.

Some more reasons to enter into a merger or acquisition include:

  • Financial synergy for lower cost of capital, or simply to save money
  • Improve performance and accelerate growth
  • Economies of scale
  • Diversification for higher-growth products or markets
  • Increase market share, positioning and gives broader market access.
  • Strategic realignment and technological change
  • Tax considerations
  • Under-valued target
  • Diversification of risk

However, mergers and acquisitions (M&A) are also fraught with risks and failures, with 65% to 85% of them found to fail in creating shareholder value.

According to a 2011 McKinsey survey, this is because firms are generally unprepared and inexperienced in managing multifaceted events. When they do work, however, it’s because the integration process was holistic, fluid and well-executed.

As a business owner, you’ll have to think about a variety of factors and dependencies when acquiring or merging with another company. More than just comparing accounting books, it also requires integrating existing IT systems, operational processes, and even company culture.

Brokering a merger or acquisition takes finesse, transparency, open communication, and, most of all, strategy. Katherine Bowers of UVA Darden prescribes evaluating four areas before taking on an M&A: strategy, organizational structure, technology & operations, and culture.

Below, we outline four key tips on successfully navigating an M&A.

1.   Clearly define your strategy, goals, and milestones.

A successful merger needs to have a clear vision and mission for how it will tackle M&A value creation. It starts with a clear understanding of where your business is at present, where you want to be, and what you value most in your company.

According to Paul Burmeister, a partner at Tatum, your merger and acquisition should bridge the gap between your company’s present state and the future state you wish to achieve.

Start by asking yourself questions about your objective for taking on an M&A. Is it to eliminate competition? To break into new markets? Or bring in a new product, services, or intellectual property to your business? The answer should inform the rest of your strategy and be the North Star for all the decisions you will make.

2.   Create a transition team and the best leadership team possible.

The success of your M&A greatly depends on the kind of team you create to oversee the transition period, setting the tone, and defining the direction that the new company will take.

It may vary depending on the industry you belong to, as well as the size of the company you’re merging with or acquiring, but generally, companies have an operations team, finance team, sales and marketing, and executive team. 

To ensure a smooth transition, you need experts from both companies to come together and share their expertise and experience to agree on a strategy.

Whomever you pick, these members must not only have the expertise needed to create and execute strategies, but they must also have the interpersonal skills required to foster synergy with the other groups. 

This is even more paramount in the leadership group you choose. Transition leaders are ideally selected from both sides of the deal—they are familiar with the culture and workings of their respective companies and have established good relationships with their people. 

Your transition leaders must be able to communicate and provide clarity to each other and their own teams. They must be able to rally everyone and get them on board with the changes that will inevitably arise during the transition stage. 

3.   Communication and transparency

Another critical factor in a successful M&A is for everyone on both sides to be informed and understand the vision and goals of the merger or acquisition. Transparent and open communication will go a long way to quelling harmful rumors and misunderstandings.

The leadership team should take time to show that they care and value their team by keeping them updated on the changes happening, new strategies, new groups, and new opportunities.

4.   Practice due diligence securely

Before merging with or acquiring another company, you’ll want to go through your prospective partner’s books, statements, and even policies and processes. In fact, proper execution of due diligence should go beyond finances and also encompass technology, legal, operations, and people.

Some of these can be done digitally, and this may save you a lot of time and resources compared to sending over a team to your prospective partner’s physical offices.

However, taking advantage of digital technologies means you’re also opening risks for cybersecurity issues. As long as you take the proper precautions, such as meeting over secure connections or encrypting files properly, technology can help facilitate a faster and smoother M&A transition.

Author: Eric Allison

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