Organizing and Implementing an M&A Growth Strategy for Success: Optimizing for Predictability, Efficiency and Transparency

I was pleased to collaborate with my good friend Frank Chaiken, Esq. for this month’s article. Frank serves a partner for Thompson Hine, LLP and is chair of its Corporate Transactions & Securities practice group. In addition, he serves on the International Practice Committee. Frank focuses his practice on corporate transactions, including mergers & acquisitions, start-ups, joint ventures and commercial agreements and has extensive experience with international transactions. He also serves as general outside legal counsel to a wide range of business clients.

Our collaborative article Organizing and Implementing an M&A Growth Strategy for Success: Optimizing for Predictability, Efficiency and Transparency was originally published in Thompson Hine’s newsletter Business Law Update, can be found in full below:

To be successful in growth through M&A, companies, whether public, private or private equity-backed, need to consistently deploy a focused strategy and process-based approach. In this first article of a two-part series, we discuss some of the considerations, techniques and approaches that are critical to executing successful acquisitions.

Dedicated Team

The senior management team sets the tone and tempo for any acquisition program. From the CEO to senior division leaders, the needs of the business lines have to drive the strategy. The CFO and finance team also play a critical role in defining the financial objectives and understanding the potential contribution of a prospective acquired business, especially the impact on the balance sheet, earnings and overall business profile. This may include a dedicated internal M&A or corporate development team and in-house legal team.

The company’s outside advisers, including banking, legal, accounting, engineering and other disciplines, play a critical role as “force multipliers” in augmenting the company’s internal teams. Any successful acquisition program must integrate these internal and external resources into an efficient, seamless team. Outside advisers to acquirers in particular should place a premium on predictability, efficiency and transparency.

Clear Strategy and Focused Target Criteria

When it comes to acquisitions, it is better for a business to be active and strategic, rather than passive and opportunistic. The goal should be to be considered the “acquirer of choice” in the company’s space (or segment or industry). A company should not sit back and wait for sellers, search firms, business brokers and investment banks to reach out and bring them deals. On the contrary, successful acquirers continuously build relationships with all of these parties and others to identify targets that make strategic sense.

Strategic objectives for growth acquisitions will vary from company to company, but all fall into several recognizable categories, such as geographic market expansion, new product lines, new customers, talent and technology acquisition, logistics and other cost consolidation opportunities. There may be others, of course. What is important is that a company establish an acquisition strategy (with a list of names or at least a definition of the type of target) that will lead to growth. In many businesses, particularly in mature markets, it is very difficult to grow organically, so acquisitions become a critical way (and are sometimes the only way) to grow.

Once a company has decided to employ acquisitions as a way to grow, it must establish clear goals and answer important questions, such as: What types and sizes of businesses do we want to buy? What are we willing to pay for these businesses? Identifying and defining the right targets is the most important part of building an acquisition or growth strategy. The growth strategy should consider whether the company and the targets can or should be able to help each other with new or more robust applications and/or technologies, relationships with key customers, building out high-performing or high-potential management teams, and so on. When all of the criteria have been established, the company may already be able to identify (by name) the targets it would like to acquire, or at least a list of the types of targets it would like to acquire.

Once a list has been produced, it is important to prioritize the targets and communicate this information to search firms, business brokers and investment banks, and other referral sources as appropriate, often depending on size and valuation. Sometimes the acquisition of Company B becomes more important if Company A declines to even discuss being acquired.

A potential acquirer needs to have the courage to say “no” if a target presents itself that does not meet the strategic criteria. Even if it is a “good deal,” such an acquisition may distract management from its main targets and objectives. Of course, the opportunity to purchase a non-strategic business at an attractive valuation may well suggest a reassessment and change of strategy.

Selling a business is often a very personal decision, especially when the founder is the potential seller. The timing must be right and sometimes it can take years of relationship building before a seller will decide to move forward. An acquirer must nurture relationships and be willing to give the seller time to decide to do a deal, but must also be willing to move down the list to talk to a lower priority target. Successful acquirers build and nurture these relationships in various ways, such as by creating a positive public image for the acquirer and its leadership and participating in industry trade groups, organizations and other networking forums.

Proper Sequencing of Tasks to Control Costs

Identification of a suitable and willing target is the necessary first step in the deal process. Then the real work and fun begin. Most likely the parties will have discussed some general deal parameters, including basic facts about the business and rough numbers suggesting that a mutually beneficial transaction is possible.

The parties then usually exchange a confidentiality or nondisclosure agreement to allow the freer exchange of information, which enables the buyer to sharpen its pencils and develop a more definitive view of the “fit” as well as potential valuation. This is a critical juncture in the life cycle of the deal, at which point the parties will discuss the valuation and determine if there is a mutual desire to proceed.

Read the full article here:

Organizing and Implementing an M&A Growth Strategy for Success: Optimizing for Predictability, Efficiency and Transparency from William M. ("Bill") Schult