Corporate Development is the team at a corporation responsible for strategic decisions to grow and renovate its business, build strategic partnerships, and achieve organizational excellence. The purpose of Corporate Development is to create opportunities for the company through actions such as mergers and acquisitions (M&A), divestitures, and deals that leverage the value of the company’s business platform.
Usually, there is a question that what checklist is to be followed for due diligence while going for mergers and acquisition transactions. There are some standard things that should be included in the due diligence checklist such as legal questions, environment questions, and account questions are to be asked. However, this is not enough for all types of deals. It doesn’t speak about the surprises that are prominent like culture, suppliers, customers, etc. It sometimes gives a false sense of security for the company that everything is clear and that are no surprises awaiting. Thus, thinking beyond that checklist is highly essential.
Experts suggest that the best way to start is through the integration process. M&A integration is the process of bringing two or more companies together with the goal of increasing synergies to ensure that the deal lives up to its predicted value. Integration should include upper-level executives and key persons in the company.
Most of the companies are concerned about setting the company for the deal but very few are prepared for Post-close surprises of an M&A transaction. Companies tend to think that the deal is done but it is just the start to a whole new set of challenges that are to be dealt with. The first major challenges are that no matter how much you try during due diligence or integration stage to know about the intentions of key employees of the company, be it an executive or a salesperson that’s one of the best company has. Post-close, it is important for the company to retain these employees who are a major reason for the growth of the company. To be prepared for such things can be a way to eliminate post-close surprises.
Mapping out post-close scenarios isn’t easy as different deals might face different types of surprises. However, if the company identifies the key drivers in the company, it makes things easier. One of the ways is to do scenario analysis through financial modeling. Bankers and other finance experts can help you with it to let you know what the key drives are which can be price, or product growth, or market expansion, etc. It also gives a brief of the risk that might occur or any uncertainty that might occur.
As alluded earlier, bring the operative executives in the conversion as earlier as possible helps to mitigate potential risks of failure that might occur. However, it is not always about eliminating the risks but being prepared for the risks is important as they are uncertain in nature. Buyers tend to keep the expectation too high which sometimes leads to disappointment because of the post-close surprises. It might just add such fuel to the fire. So it is vital for the executives to keep their expectations in check and deal with things one at a time.
The company can start with easy to spot risks that can be environmental or cultural into the company. Also, the company should be prepared for the customer’s reactions to the acquisition. Usually, most of the companies have plans pre and post the deal to keep the prime customers and executives in the loop with the process. The customers might get more engaged or withdraw completely after the deal. Thus, retaining customers is something the company can think ahead of time.
There are many other complications that might occur post-deal. Some of which the company can be ready for and some not. But, patience is the key here. That one step at a time and have a strong team that is prepared for the post-close risks.