M&A Best Practices, Principles, and Priorities

Implementing best practices in M&A is very often what separates long-term value creation from value destruction.

Where mergers and acquisitions are concerned, the process is everything.

We, at DealRoom, help dozens of companies organize their M&A process, and below, we look at 10 elements of best practice that every M&A practitioner should. 

1. Identify Strategic Fit at the Outset

Successful M&A transactions are impossible if strategic fit isn’t present.

Companies need to identify targets that align with their strategic objectives, complement their business operations, and can be effectively integrated.

If these seem obvious, it’s quite remarkable how many times all three are overlooked by companies who are seeking ‘opportunistic M&A.’ Too often, ‘opportunistic’ is a synonym for unplanned - a fast track to value destruction.

To mitigate this, many companies turn to the strategy of investing in industry knowledge. This strategy often manifests itself in a way quite similar to how students sometimes pay for essays. Companies pay for professionally prepared market overviews or target analyses from industry experts or consulting firms.

These comprehensive documents offer vital insights, aiding the decision-making process, and in turn, increasing the chances of M&A success.

Related: Reasons for Mergers and Acquisitions.

2. Ensure Clear Communication Throughout

The nature of mergers and acquisitions is that they affect all stakeholders, internal and external.

By ensuring good communication during M&A deals from the outset, M&A practitioners stand to minimize uncertainty and foster trust with these stakeholders.

Perhaps even more important than this is enhanced communication leads to increased sharing of ideas. Somebody in your network will almost certainly point out something about the deal that hadn’t yet been considered. 

3. Conduct Thorough Due Diligence

As an integral part of any M&A process, due diligence cannot be overlooked.

The more due diligence is conducted, the more informed the decision-making, and the more likely you’ll discover the target’s intrinsic value.

And if being through means that more time is required to close the transaction, so be it - due diligence cannot be rushed. To quote Warren Buffett:

“You can't produce a baby in one month by getting nine women pregnant.”

4. Circle in on the Target’s True Value

The expressed ‘accurate valuation’ is often used by M&A onlookers to suggest that each company has an intrinsic value that dictates how much a buyer should pay for it.

On paper, this is solid enough logic, but it omits something: The intrinsic value of every target depends on who the buyer is.

Lots of factors should be considered when arriving at this true value, including strategic fit, your capital structure, and cultural issues. 

5. Assign Metrics and Responsibilities

Making M&A measurable is one good way to ensure that value is extracted.

While event studies look at the movement in a stock’s price in the period before and after a transaction, they overlook a series of other metrics that can be used to gauge the progress of a deal.

For this to happen, make somebody responsible for each metric:

• tracking synergies,
• integration objectives,
• human resource metrics,
• and more. 

6. Be Cognizant of the Risks Before They Arrive

Risks go with the territory in M&A, but it’s far easier to deal with them if they’re pre-empted.

The best practice for risk management in M&A is to create an extensive list of the risks that could arise during the process. This could be anything from compromised data security to unwelcome disclosures during the legal element of due diligence.

In each case, develop a sense of what actions will be taken if any of the outlined risks do materialize.

7. Value People

Whatever the size of the company and whatever the industry, it pays to look after people during M&A.

In many instances, the best way to achieve this is through implementing change management - understanding people’s concerns about the deal, the new entity, and their roles.

By making this investment in your human resources, you stand to unlock the potential of previously undervalued employees.

8. Find the Balance Between Timelines and Flexibility

Setting ambitious timelines is important in M&A, but not as much as flexibility.

The aim may be to close a transaction within six months, but if due diligence provides insights that require further investigation, the timeline has to be extended.

Using technology (see bullet point 10) is the best way to speed up the M&A process, enabling practitioners to claw back some of the time that can be used on unforeseen events.

9. Begin the Integration Process as Soon as Possible

One of the truisms about post-merger integration is that it exists in some form in the minds of CXOs as soon as they’ve identified a potential target.

Integration is at the core of why that company is a target in the first place. Given that up to half of the value in a deal is extracted during the integration phase, the sooner it is conducted, the better.

And remember that every piece of information yielded by due diligence should inform the integration process.

10. Leverage Technology for Better Outcomes

Achieving all of the steps above is made significantly easier through the leveraging of technology.

Agile M&A is a practice that advocates for the use of technology in M&A transactions, to enhance outcomes in the same way that it does in other spheres.

Whether it’s in identifying strategic fit, carefully identifying value drivers during due diligence, or understanding a company’s value, technology - and Agile M&A - has a key role to play.

Conclusion

Every transaction is different, but successful deals rarely stray far from the same tried and tested processes. Refer to the 10 steps mentioned in this article to maximize the potential of your M&A transaction.

Talk to DealRoom today about how our Agile M&A technology can turbocharge your dealmaking.