Huge opportunities lie ahead for businesses that will go through the pandemic and M&A might be playing an important part in companies’ recovery.
Since such transactions will pick up again soon (hopefully!), we reached out to Christopher Bates — Former VP Global M&A Integration at Jobandtalent, Partner at December Capital, strategic operator with +14 years of experience launching, scaling, transforming, optimizing, and managing a variety of operations in multiple countries — so he can share his M&A knowledge with us.
🗝A couple of key takeaways:
General
- The reasons why a steady rhythm of M&A activity is more successful are fairly straight forward:
- Companies that execute M&A regularly develop competence in every stage of the acquisition process.
- These companies also have a clearer view of their own strengths and limitations which are difficult to know prior to doing M&A.
- Market consolidation and access to new technology are among the main reasons why companies employ M&A.
- The robustness of the M&A deal-making operation depends on the volume of M&A deals you plan to execute.
The process
- The 3 stages of M&A process:
- definition and alignment on the strategy: decide whether or not M&A makes sense, if the business is prepared to support M&A as part of the strategy, and decide the profile of the business(es) to acquire and agree on the purpose for executing M&A.
- deal making: build the M&A Team, identify and approach target(s) / build the pipeline, negotiate the Non-Binding Offer (NBO), execute the due diligence, negotiate and close the deal
- integrating the acquired businesses: inform the Due Diligence Process, set the integration objectives, build the team and integration plan, execute the integration, track and measure the progress.
- The integration process starts once a target has been identified, and it should begin as early as possible to allow time to generate a solid plan and gather the necessary resources. A timeline is available in the presentation below.
- The due diligence provides insights that allow to clearly define the objectives within the integration (for instance, the overall objective can be “Consolidate market, acquire tech, etc.”, but there can be sub-objectives as well. e.g. “Stop working with X client”, “Transition to Y CRM”, “Introduce Z product to acquired clients”).
- From planning sessions with key leaders (definition of the key tasks within each element of integration of the dependencies, of the trigger to consider the task to be completed), to planning phase products (detailed integration timeline with all the major tasks and task owners, new budget) and communication + alignment actions, a solid integration planning process ensures that you’ve thought of the main value drivers and the committed necessary resources.
The risks
- The first months can be the most challenging and the riskiest, especially when it comes to the announcement, integration, and stabilization phases. You need to:
- avoid sugarcoating & exaggerating,
- win over key people /clients / suppliers right away,
- move fast,
- be aggressive about problem-solving
- ensure communication flow,
- the acquiring team and culture may have to adapt as well as the acquired team,
- set standards and stick to them,
- anticipate that many acquired people will leave…
Monitoring
- You need to be tracking and measuring from day one to make sure you’re executing according to plan and keeping up the pressure.
- You need to track the execution, with the PMO being:
- => responsible for monitoring the completion of the integration,
- => responsible for communicating the status of the integration and troubleshooting major problems that arise => in charge of developing a standard rhythm for reporting, format of reporting, and a standard tracking tool to facilitate communication and coordination across the organization.
- You need to track the Business by:
- => making sure the integration team attempts to begin tracking the KPIs of the acquired business from the first day, and to the maximum extent possible.
- => monitoring the most important KPIs which are the ones that correspond most closely with the integration strategy.
- => encouraging the PMO to track and report the monthly financial results and compare them against the agreed-upon plan.
The pitfalls
- Though M&A, on the whole, does drive long-term value for shareholders, executing it bears a big risk and it can fail for many reasons (chemistry and culture, overestimation of synergies underestimating dis-synergies, distant Leadership, not involving operators…)
- The best way to mitigate risks in M&A is to have a thorough understanding of the target as well as an honest self-assessment.
- To mitigate risk:
1. Conduct thorough due diligence of the target
2. Conduct an honest and objective self-assessment
3. Don’t overpay
4. Minimize exposure to multiple risk factors
5. Acknowledge the difficulty in doing M&A right
Summary: M&A Strategies are complex to execute but can add value over the long term.
🙏🏻 Warm thanks to Christopher Bates for sharing these valuable lessons with us.
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