Is M&A the Right Move for Your Company?
With M&A activity at an all-time high in several industries, you may be considering whether now is the right time to add a merger or acquisition to your company’s growth plan.
Globally, mergers and acquisitions set a record high in 2015, with $4.28 trillion worth of deals, according to a report by MergerMarket.
Locally, South Florida has led the state in mergers and acquisitions for the past several years, and last year was no exception. During 2015, there were 478 completed M&A transactions in Florida, and 206 of those (43 percent) were in South Florida, according to the 2015 Florida M&A Report from Hyde Park Capital.
While the total value of these Florida deals was lower than in 2014, the number of transactions was higher, suggesting more activity among smaller companies — a change that seems to be in line with wider trends. SunTrust’s new Business Pulse Survey reported a “significant shift in small and mid-market business growth strategies” in 2015 with more of those companies considering M&A than in prior years.
A merger or an acquisition can be an extremely effective way to grow your company, but only if it’s approached carefully and strategically. Successful mergers and acquisitions take months or even years of planning. Many deals fail because of insufficient planning and diligence. Investing time and resources upfront to properly evaluate, plan, execute and integrate a transaction will pay dividends in the long-term and greatly improve your chances of success.
Does M&A align with your company’s strategic plan and vision?
The first task is critical thinking. Spend time reflecting on your long-term goals for the business and any challenges that may stand in the way. Is a merger or acquisition the best move you can make right now to reach those goals? Will an M&A deal enable you to overcome challenges or obstacles preventing your company from achieving sustainable and profitable growth? Is everyone on the management team on the same page about the future of the firm?
You may want to engage a business advisory consultant to help you and your management team to assess your financial picture and put together a comprehensive M&A strategy that aligns with your corporate goals while accounting for industry and market changes. Target selection criteria, deal structuring and financing options are just a few of the considerations you will have to weigh. Financial modeling is a valuable tool that can help forecast the impact of a planned merger or acquisition.
Have you conducted adequate due diligence?
Due diligence enables you to identify risks and better understand whether the merger is likely to meet expectations for success. An M&A specialist can help you determine what a potential deal is really worth and whether it makes financial sense for your company. Analyzing the assets and liabilities of your target, understanding how cash is generated, and looking at financial and non-financial performance measures can provide you with a better view of the financial picture.
In addition to assessing the financial aspects of a transaction, a specialist can help you to conduct operational due diligence, exposing possible risks, hidden costs and weaknesses in operations.
Your due diligence process should also include IT due diligence as well as assessments of the target’s governance structure and corporate culture as compared to your own. A poorly developed IT system can reduce the value of the target by providing data that is not representative of actual performance. Similarly, a cultural misalignment can sometimes make or break a deal.
Do you have a post-transaction integration plan?
Integration is where many deals fail. It’s not enough to get through the closing. You need a transition plan that includes change management, integrating your back office, and identifying overlaps or gaps in your accounting processes, IT systems and staffing. You should plan for employee training, as well as any changes in your supply chain or operations that may result from the transaction.
An M&A deal can bring many positive changes for a company, including adding new service lines, deepening existing expertise, expanding geographic reach, and developing new customer relationships. But you have to be prepared to handle these changes and the effects they will have at all levels of your organization.
Before making an M&A move, make sure that it is the right one for your business, that you have invested enough time and resources into planning and diligence, and that you have the right team of experts to provide guidance and assistance throughout all stages of the transaction.