There’s no magic mirror to reveal the hidden truth: “Will this merger or acquisition take my business to the next level?” Old school, strategic evaluation is a necessary aspect of every M&A deal if it’s going to succeed. A recent study by the Harvard Business Review of 2,500 M&A deals reports that over 60% of M&A deals destroy shareholder value.
While able to generate great success to your company, the consequences of a bad M&A deal can be dire. That’s why your pre-deal evaluation should include a careful analysis that extends far beyond the combined, potential revenue generation of both companies.
There are many things to look for during the vetting process. However, the most critical question remains will you both get along– that is, emotionally, synergistically, and financially. There are at least six key aspects to look for when analyzing corporate compatibility.
The Big 6
1) Culture: Do you share the same values, and are the two companies compatible? When integrating two entitles it is important to know if both parties can somehow work together, understand one another and see eye-to-eye.
2) Synergy: Is this the best choice for your company? Do the products or services enhance or integrate with your own product offering? If you sell apple juice, selling frozen juice pops is not a huge departure. More than likely, diversifying into something cold (and just as juicy) will expand your market share and will enhance your brand recognition. Jump to cleaning products, and the transition may not be so smooth.
3) Power Don’t bite off more than you can chew. Do you have the staff, experience and resources required to manage the transition, your existing company and customer bases as well as the operation of this new business?
4) Vision: Does the deal support your overall goals and objectives for the future?
5) Value-creation Conduct your due diligence. Will this merger or acquisition strengthen (or weaken) your company’s market position? What is the potential value the merger presents to your customers?
6) Affordability Is the deal really the right match for you financially? Will you have enough funds left over to amp up your infrastructure, if needed, or to support your company during the next economic downturn? Can you secure the funding you need for the buying process? Does the other company present well enough on paper to be taken seriously?
Look to the numbers and beyond…
In terms of predicting the long-term success for your M&A venture, don’t forget to look beyond the EBITDA (earnings before interest, taxes, depreciation, and amortization) and the tangible assets of the company to its subtler, intangible assets: innovation, brand recognition, patents, trademarks employees, experience. For it very well may be the later, the somewhat elusive intangible asset, that delivers the greatest ROI and the brightest future.
Lastly, before your sign on the line, turn to a professional consultant or business appraiser. Often seeking an outside, professional opinion can be most helpful in walking through the sometimes bumpy process of a business merger or acquisition.
To learn more about the mergers and acquisition process or about funding options for middle market growth, please contact me at [email protected] or visit us at www.attractcaptial.com.