Member at Sills Cummis & Gross P.C.
If your business is considering a merger or acquisition as a target or buyer in 2023, here are some tips to focus on:
1. Identify a target.
If you are looking to potentially acquire another business, you must first begin with identifying a target. In order to do this, you want to look at the sector and understand who the respective competitors are in that space. Additionally, you should seek to explore unique attributes and geographies of various potential targets.
Consider whether it complements existing areas of your organization. Does the target excel in areas your company lacks? Does the target have distribution centers in areas of the world your company is looking to target?
If, as a business owner, your business is targeted for potential acquisition, you should ask yourself the same questions (but from a slightly different vantage point). How could the resources from this larger company help your organization excel and grow? Do the resources from the potential acquiring organization seem attractive for the future of your company?
2. Analyze financials and conduct due diligence.
Once you have either identified target companies for potential acquisition or your company has been identified as said target, the next step is financials and due diligence.
At this stage, acquirers must decide how they are conducting due diligence—with a law firm? an investment bank? key internal offices? all of the above? It is essential to conduct thorough due diligence to ensure no surprises after the deal closes. Some items that require focus during this period include the target’s financials (including profit margins, revenue and debt).
Additionally, as the business owner of the acquiring organization, you should focus on the target company’s assets and liabilities, including any equipment, intellectual property or real estate holdings. For optimal merger success, you should also analyze the target company’s customer base, market position and growth potential.
As the target organization, you will need to make sure all of your internal metrics and processes are in order to ensure the best chance of success in this stage.
As the acquiring company, your next step is putting together a letter of intent (LOI) or a memorandum of understanding (MOU) that outlines the key terms and contingencies for a potential deal. These key terms and contingencies include the due diligence period, financing contingency period and/or an approvals contingency period (if special licenses or permits are required for the acquirer to operate the target upon transaction completion).
3. Integrate the two companies.
As a business owner, once you identify your target for acquisition, you should look into how to integrate the two companies. If, on the other hand, your organization is to potentially be acquired, it is of paramount importance that you consider this from your vantage point. Both parties, in evaluating integration possibilities, should consider their individual and collective interests—including what the culture is like at each organization, among other factors.
Additionally, you will want to consider the management style of the other organization, and what it would look like to merge with an organization with said management style. What key executives remain? If you are the target company, how will employees at your organization react to any proposed changes?
After considering these initial questions, the next step for the acquiring party involves creating a written plan about corporate integration. This plan may include items such as whether the acquirer will move all of the executives from the target to their main headquarters, whether an in-person, remote or hybrid work style will be deployed, whether the target’s footprint will be reduced (office space), etc.
At this stage, it is critical that delineated policies ensure the target will be run like a top-tier organization. As the target business owner, you should be ready to understand how the acquiring party intends to streamline the organizations’ systems, and how this fits within the larger plan.
4. Ensure mutual success and leverage brand equity.
Myriad opportunities for leveraging the target company’s brand equity exist. To begin, you should decide whether to fold the target directly into your business or keep it as a separate subsidiary (continuing to use its own name). At this stage, you can explore ways to integrate the target’s product or services into your company’s offerings. Ideally, these integrations would create more opportunities and value for your customers, shareholders and team members.
It is important to understand the goals of both organizations in this process, as well as the strengths and weaknesses of each. Ideally, the merger or acquisition will create opportunities to leverage the strengths of both organizations to form a more successful parent organization.
With this, the success of an M&A deal hinges on meticulous planning and careful, measured execution. Whether you are the acquiring or target party, it is important to approach the potential deal from all angles and decide whether the merger or acquisition makes sense from a financial standpoint as well as a cultural and service-offering perspective. By keeping the above tips in mind, an M&A deal can be a powerful way to achieve your goals as a business owner in 2023 and beyond.
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