Acquiring another company can be a powerful way to drive growth, but the process is often more complex and challenging than many first-time buyers anticipate. From an M&A attorney who has guided many clients through their initial acquisition, here are five key pieces of advice to position your first acquisition for success:
- Build Internal Consensus on Strategy. Well before engaging with sellers, get buy-in within your organization on the strategic rationale and objectives behind pursuing an acquisition. Having all key stakeholders — leadership, corporate development, finance, legal, HR, etc. — aligned on goals like new market entry, product expansion, talent acquisition, or other drivers will keep your team marching in lockstep throughout negotiations. During the sale process, your organization will have multiple parallel touchpoints with your counterparties (e.g, CFO to CFO), and it is important to present a unified front so the seller does not lose confidence in you or use that lack of cohesion to your disadvantage.
- Carefully Assess the Competitive Landscape. For an attractive target, your bid will likely face competition from multiple suitors. Thoroughly evaluate potential counterparties and their M&A experience, resources, and resolve. This intelligence can guide your negotiating posture, deal terms you propose, and how aggressively to pursue the prize. In certain competitive situations where the target is being shopped by an investment banker, it will be important to consult with your advisors to ensure your bid is competitive and sophisticated across all facets.
- Plan Exhaustive Due Diligence. Inadequate due diligence is an acquirer's worst nightmare — skeletons in the closet, unvetted risks, and costly surprises. While laborious, detailed financial, operational, legal, compliance, IT, cybersecurity, and other review is essential to flushing out issues and properly valuing the target. Staffing and managing an efficient due diligence process is imperative. Almost as important as the breadth of due diligence is the order of due diligence. If you will be relying on outside advisors for most due diligence as is typical, it is important from a cost perspective to frontload the diligence that could lead to true dealbreakers – typically, inquiries to confirm your financial assumptions. If you can lay out a diligence plan the seller can follow (and become the rare buyer to actually stick to that schedule), you will separate yourself competitively and ensure the seller does not get “deal fatigue.”
- Prioritize the 'Must Have' Legal Terms. Not every contractual point is a dealbreaker—in fact, very few truly are, in my experience. Work closely with your M&A counsel to categorize the issues that could unravel the entire transaction, versus negotiating points where you may have flexibility, and make sure counsel understands your personal risk tolerance on each of those points. Focusing the team's energy on securing protections for the high priorities and empowering your counsel to concede your lower priorities enhances your chances of a successful signing.
- Prepare a Comprehensive Integration Plan. Often, the first thing every party wants to do after a closing is decompress. If you're lucky enough to close on Friday, that might be possible, but you also need to be ready to integrate a whole new group of employees into your workforce. Most of those parties will have some trepidation about what role they will have in the combined business. Then, once a public announcement is made, you'll need to be ready for a new onslaught of questions about how your transaction impacts your customers, vendors and other third parties. On top of all that, you now have two businesses to run. Inadequate post-merger integration is often the first potential roadblock that can undermine an acquisition's projected value. From the beginning of your transaction, establish a rigorous integration strategy and dedicated team. Moving quickly on merging systems, operations, people, products, etc. can accelerate synergy capture and prevent unproductive dysfunction. A fast, focused integration effort lays the groundwork for realizing the deal's full strategic upside.
While thrilling, acquiring your first company demands focus and execution across multiple workstreams. Teaming with legal and other professional experts experienced in complex M&A can dramatically improve your odds of a successful deal and smooth integration. With meticulous preparation and the right guidance, an initial acquisition can unlock an exciting new phase of growth.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.