How To Successfully Build And Execute M&A Transactions

How To Successfully Build And Execute M&A Transactions

Mergers refer to combining the buying side and the selling-side and forming one company altogether. Whereas, in an acquisition, the acquirer company or individual buys or takes over the target company. Mergers and Acquisitions take place due to market incidences, growth strategies, diversification strategies and many more.

Every M&A transaction is formed against a value creation logic i.e. the economic theory of the way in which the new combination of acquired and existing assets will enhance shareholder value by superior usage of funds. It is a commonly stated fact that the larger is the deal, the tougher it is for the logic to exist. Such mega deal success demands that several operational strategies and assumptions of stumbling complexity and size is falling into one place, different employee cultures must blend together, market dynamics must roll out as per plan, cost saving schemes based on operations must be fulfilled and several others.

In this rapidly changing business environment, every organization needs to be highly adaptable and agile to ensure that they don’t miss out on any market opportunities, have critical means of improvisation, instantly adopt new technologies and skills. For each of these factors and means of growth, M&A is an ideal business practice and having a successful deal helps the organization in their long-term goals along with the fulfilment of the laid down objectives.

To get the M&A deals successful, organizations need to follow some steps that will surely help them in the same. These steps are mentioned below:

1. Forming acquisition strategy:

Before encountering on the grounds, buyers must have an exclusive plan ready with them which should include acquisition purpose and plans, growth dynamics, market planning, future objectives, competitive analysis and cost reduction parameters followed by synergies.

2. Setting a target database:

After formulating and jotting down each and every purpose or objective of the aimed acquisition or merger, the buyer in the deal must firstly pick an industry type which he is targeting and further purchase an industry association list as it is the best place to start the process with.  

3. Modifying target criteria and evaluation of potential target:

After getting the initial list, the acquirer will apply filter on the it to reduce the number if companies from the list and move more closer to the target company. In this modifying or filtering process, corporate development teams of the company will consider two of the main aspects i.e. type of the company and other being the deal size.

Once the basis of the criteria has been finalized, teams will prepare lists of “A” deals and “C” deals. The purpose behind creating these two types of lists is to facilitate the buyer in being too aggressive or spending more amount in an acquisition. At the end, all the databases along with A and C lists have to be put in a project management platform from where it can be easily shared, stored safely and effectively organized. 

 

4. Establishing contact with target:

The next step is that the corporate development teams should start working with the target companies to build relations. The most difficult element of this stage is that of corporate development experts call “the gatekeepers” and getting past with them. These gatekeepers include administrative assistants, managers, CFOs, CEOs and COOs. Corporate development Team’s task is to bring down the anxiety levels of these gatekeepers. Initializing the relationship with the CFOs or the COOs, it must be kept in mind that beginning must be made with general conversation and not bombarding with mega terms like acquisitions, etc.  

5. Target evaluation:

Once a connection is established between the buyer and the seller, the next duty of the acquirer or the seller is to keep on listening to the data which is being given by the seller-side. After this procedure, thorough analysis of all the financial statements, company’s objectives and KPIs is mandatory. But if there is some unavailability of the data, the buyer can request dome basic data form the seller and for the same a request can be made. These type of information helps in understanding the deal and taking further decision in respect for finalization of the target. It is not always a strategic idea that makes the M&A process successful but also the financial nature of the deal plays a major role in the same.

6. Purchase price negotiation:

The moment the buyer-side gets satisfied wholly with the entire evaluation process conducted for the target company, they would like to move forward and step into the offer. It is always better to represent yourself as a legitimate buyer so that the seller doesn’t give away the deal to someone else and considers you as a prospective client.

7. Conducting examination or due diligence:

After the seller accepts the buyers offers, examination of the target’s financial position, assets, operation and liabilities is conducted and this dep analysis is called as due diligence. Recently, two major movements in M&A has been leveraged to reduce the pain of examination by enhancing efficiency.

  • Secure virtual data rooms allow the information to be stored safely and can be easily shared between various stakeholders. They help in reducing redundant tasks which thereby increases the overall efficiency.
  • Agile principles assist in establishing proper governance system and plethora of meetings along with prioritizing tasks. The sellers have a pre-requisite that the buyers must sign a confidentiality note in respect to the information being shared from their end.

 

8. Finalizing the contract:

If te diligence or the examination process has been conducted smoothly without occurrence of any type of error or unwanted information being popping out, the contract is thereafter finalized with the agreement of both the parties involved i.e. the buyer and the seller.

9. Closing the contract:

After the contract has been finalized, the operations of integrating both the companies begin. This involves fulfilling all the major norms of M&A in India,

10. Integrating the companies:

After closing the deal, Post-merger integration (PMI) process takes place wherein two or more companies comes together with the objective of increasing synergies which will ensure that the deal fulfils the laid down objective for both the parties of the contract. Post-merger integration problems often lead to failure of the deal or generate an inability in extracting the full potential of the same. Due to these reasons, PMI problems are being looked more seriously upon by the sellers and the buyers. Each and every detail of the integration process must be looked into detail from the beginning and also another element for smooth integration is making the integration team out of the members of the diligence team only. This is so because it will generate effective communication and increase overall efficiency.

 

Conclusion:

While upkeeping with all the steps and procedures of a successful merger or an acquisition it is important that the deal is not only adequate on the papers but also in terms of fulfilling the companies’ objectives. The next step involves deriving feedback from the leadership team and also the employees from both sides to put together the lessons learned in the entire process.

 

About the author: 

Mervyn Aranha is a Business Analyst - Transactions at Kapso Business Services, India’s Leading Business Brokerage firm.