At the risk of sounding trite, the opportunities for successful acquirers have never been as great as they are now nor the risks higher! The market generally views with suspicion those who would target growth through deals as their primary vehicle (the Valeant and SunEddison story is another in the litany of M&A disasters…see here for my take on it) but for those who do it well, the leverage of the low cost of capital, reasonable valuations and potential for disruption in industries which have been spoilt by little change over the past few decades, the potential upside is indeed extraordinary.
So, what to do if this is the first of perhaps a few ventures into the world of M&A? Here are some ideas, which in my experience, may make that first leap into the snake pit likely to be less painful. This is not meant to be a checklist, rather some aspects of M&A readiness which business leaders potentially struggle with, in the quest for inorganic growth:
Is everyone onboard?
This is not about masterclasses on M&A and post acquisition processes, tools, templates, methodologies (most of which are available if one searches carefully)…but a preparation of your business, its employees (at every level). You and they need to go into this with eyes wide open…and perhaps for those who are not prepared to commit themselves, a distinctly separate strategy needs to be put in place. Ask yourself a few questions:
- What are the real non-negotiables? What are you not prepared to compromise on, in terms of culture, values, employee base, products, customers, ways of working etc?
- What are the things which you want to achieve through the deal? ignore the financial benefits for the time being…what will make your proposition more unique, more compelling, more robust in the face of fierce competition…where do your weaknesses lie?
- Why is this the right strategy? You need to understand this so well and believe in it so strongly, that with every ‘yes but’ your conviction grows stronger…clarity, rational thinking but most importantly, authenticity, passion and drive are critical in persuading those around you.
Are you personally prepared for the change?
The one certainty is that nothing will stay the same:
- Your role…do not underestimate the distraction that deals bring with them:
- You may be used to managing ‘from the floor’…informal, getting close to the team, feeling the temperature, sensing the mood, speaking to clients (perhaps running a few key relationships).
- …and now? For the immediate future, it’s an externally based role, talking to advisers, financial backers, potential targets, perhaps the media. Different experiences, different pressures, different challenges.
- Crazy hours and less control than perhaps you’ve ever had as the agenda is increasing influenced by external forces.
Do I have the right skills internally?
Being successful in acquisitions puts pressure on existing infrastructure in an unrelenting way…exposing all those things internally which you instinctively know aren’t right and you’ll need to fix them sometime. In particular, the key skills required are not usually abundant:
- Flexible, ‘grown up’, programme and project management. For most start ups, their business is effectively a project, usually a single one based on the creation of a product or service, and the founders are intimately engaged with this. As the business matures however, the single purpose vehicle becomes more complex and that skill set recedes. In a deal, it’s critical however…check and challenge your existing resource base.
- Communications and change. No matter how small your business is, the pressure on the flow of information will be more than you can imagine:
- What do we say to our customers?
- What do we say to our suppliers ?
- How frequently do I need to speak to my employees?
- How about any other shareholders? When and what do they need to know?
- Are there any regulators I need to speak to / any other external parties, auditors etc?
- What’s my contingency plan if the deal leaks?
…and imagine that communication effort for the 3-6 months prior and post close. This is not a half day per week effort!
Small wonder therefore that companies turn to external resources to help with this. Next week I will address that issue in particular.