Mergers and Acquisition Check List: Top 5 Essentials

Posted on: November 28th, 2016

The statistics that surround the success of Mergers and Acquisitions are quite dismal. A 2010 McKinsey whitepaper reported failure rates between 66% and 75%. A 2014 Financial Times Press article reported that 83 % of companies failed to achieve the goals of the merger.

A 2011 research presentation by VSC Growth, reported that, of the 70% of M&A transactions that under performed expectations, half actually destroyed value.

While the reasons sighted are numerous- from oversight during due diligence and overestimated synergies, to failure to recognize the right strategic and cultural fit- these very same reasons, if rightly addressed beforehand can contribute to a successful venture.

We bring you a checklist of the top 5 essentials to consider before a merger or acquisition.

Draft your strategy: It is absolutely essential that every merger or acquisition should be preceded by a well-thought-out deal thesis- an objective explanation of how the deal enhances the company’s core strategy. An ideal deal thesis will clearly show where the money is to be made and where the risks are. Generally, it lists five to ten of the most important sources of value and danger, and further points out the necessary actions the company needs to take to be successful.
Don’t ignore culture: People and culture are often termed as “soft” Issues, and not paid much attention to. However, they have real and hard impact on the achievement of the ultimate business objective. Do adequate cultural due diligence to assess the cultural compatibility of the company you are acquiring and merging with.
Undertake a comprehensive due diligence: This cannot be stressed enough. Matters including corporate structure, taxes, intellectual property, material assets, contracts, litigation and other compliance and regulatory issues have to be thoroughly investigated beforehand.
Understanding leadership: An acquisition or merger needs a strong leadership team during the transition and once the deal is done. Choose a team, which is qualified and competent to make triage decisions, coordinate task forces and set the pace. Furthermore, the team chosen should be strong on strategy and content, and ready to take the new acquired or merged company forward.
Maintaining momentum: People working in the organizations that are going through an M&A often get caught up in the glamour of integrating two organizations. However, the management should not allow itself and the organization to get distracted, as the base business of both companies will suffer. Rather, a majority of time and energy should be allotted to the base business and focus on existing customers should continue to be maintained.

As we emerge from the global recession, M&A’s when well conceived and properly executed, can deliver greater value than ever right now.

However, success lies in bringing a tailored approach to integration, with one eye constantly fixed on the critical sources of value and risk.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.