By David Wimer, CBI, M&AMI, CEPA, Senior Vice President
Takeaway: Preparation is key for executing a winning strategy.
There’s a saying among high performance athletes, “First you make your habits, then your habits make you.” In the axiom above, one could replace the word ‘habits’ with ‘plans’ for strategic business growth. The point is to not overlook the value of client preparation.
When a client desires to grow their business through acquisition, our duty as their M&A Advisor is to assess how ready they may be for the process. Executing acquisition ‘plans’ to achieve significant growth and financial returns requires discipline. Here are a dozen areas for assessing client readiness to use strategic acquisition as a successful growth lever.
- Sponsorship & Family/Board Member Support. Success or failure of an acquisition is destined by the agreement or disagreement among stakeholders. Outlining potential risks helps to address preparation and mitigation. Introduction of key advisors to the Board helps to pave the way for smooth execution. Sponsorship needs to buy-in to any plan to reinvest capital to grow the business.
- Engage Everyone in the Growth Process. At the start, find out what is happening at the field level with competitors and business development. Ask and listen to reinforce front line employees to look for potential targets. Recognize that where the work gets done is many times the closest to seeing the next new opportunity.
- Create a Multi-functional Deal Team. The most effective internal Deal Teams have a representative from various areas of the business to gain a multi-dimensional perspective on any potential acquisition. Family Board/Owner(s) reserve final say in the Go/No-Go decisions. Deal Teams provide different views of the target business. The Deal Team is also an early warning system to easily spot early due diligence issues. And they provide valuable feedback for the final investment decision-making.
- Confidential Market Research & Sourcing. Sourcing targets is more than putting a name on a list. The heavy lifting occurs when active sourcing is started such as: direct phone calls, mail, email and other forms of contact management. Utilizing a third-party to source potential ‘targets’ can mean your client not showing their hand to competitors.
- Capital Commitment. Knowing what amount of capital is required to purchase a typical ‘target’ in the revenue/EBITDA range desired is critical. Building a financial model for assessing investment capital and working capital needs is helpful for analysis of a deal profile. Understanding the price range of a Good, Better and Best-In-Class company allows everyone on the Deal Team to succeed by sharing a common goal that is achievable.
- Institutional Awareness. Letting your banker know that acquisition is a strategic option for your company means they will be educated and ready when it comes time to evaluate a lending opportunity. Treat your lender as your investment partner. In turn you should receive valuable input from the banking relationship.
- Valuing the Target. Valuing a target requires objectivity and may mean third-party assistance. As M&A Valuation professionals we look at tangible and intangible value drivers, as well as the nuances of the market. Although there is science involved, much of the art relies upon the valuators personal/industry experiences. Industry data can be helpful to benchmark completed transactions. During target analysis, establish the value of expected synergies.
- Setting Expectations. Expectations may get in the way of negotiating price and structure. It’s equally important that buyer and seller be on friendly terms as it is essential to working together in the future. Most deals that do not get done are due to valuation gaps between market and seller expectations. Investing too much time in any one deal may also be counter-productive and create deal fatigue for the Deal Team. Keep things on track, on-time and working towards a next step on the path to closure.
- Letters of Intent & Purchase Agreements. Deal professionals typically review Letter of Intent documents, and are experienced in several different industries, providing valuable input to their clients. Reserve the transactional attorney for crafting the Purchase Agreement and legal points when there are contractual obligations. Internally, name a point person for reviewing documents. Deal vault document control is critical for efficiency of reviews and content management.
- Due Diligence. A critical role of the Deal Team is establishing what due diligence questions to ask and what analysis needs to be done. In many instances, a list of questions can be formed by various members of the Management Team, as requested by the Deal Team. In any deal, the details of due diligence are what makes the difference in a successful acquisition.
- Assign Post-Acquisition Integration Actions. The Management Team needs to be informed and to provide their written plan for post-acquisition integration in their areas of expertise. An Integration Leader may be selected from the Deal Team, someone who sees the larger picture and can help Management execute through the process of on-boarding through operations normalization. Most acquisitions that fail, fail to plan integration. Agreeing up front on key performance measures and what constitutes “success” helps everyone stay focused on the process.
- Communicate Clearly to the Entire Organization. Assign a Communications Leader from the Deal Team to establish regular and consistent communications. In addition, make sure that for a period of time beyond closing, the Deal Team continues to meet post-acquisition to re-evaluate the status of successful integration.
Strategic acquisition can set the overall business direction for a number of years, if done successfully. Using acquisition as a strategic growth lever, the combined strengths of buyer and seller are leveraged to maximize enterprise value, ensuring the investment is accretive to the buyer. In summary, an acquisition requires careful and conscious planning to maximize the enterprise value of newly combined tangible and intangible assets. The checklist above provides practical ‘habits” to achieve the goal of strategic acquisition growth.
Dave Wimer, CBI, M&AMI, CEPA is Sr. Vice President, Murphy McCormack Capital Advisors, Lewisburg, Pennsylvania, and Chair of the M&A Source Communications Committee (firstname.lastname@example.org). Since 2006 Dave has advised clients on the M&A process, exit planning, sudden exit situations, turnaround and executing strategic exit initiatives. His work has included companies with revenues up to $110 million and operating a Family Office overseeing operating assets with value in excess of $50 million. In 2014 he authored INSIGHT: Business Advice in an Age of Complexity, a story of his developmental journey from owner to advisor. His guidance has preserved and generated millions in enterprise value and cash flow for clients.