A Few Notes on M&A

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The successful mergers and acquisitions require a great deal more than just analysis of the financial statements of the candidate. Digging in deeply in the operating details and asking the right questions is a fundamental component of evaluating the candidate. A very involved and intense discussion of all aspects of the business is necessary.

The M&A team will be faced with many challenges and numerous time-critical deadlines and milestones to be met. Customers want to know what is going on, suppliers similarly.  During the early stages of the integration process   the board’s executive committee must closely oversee and evaluate the effectiveness of the process..

Questions to be Asked

Throughout the integration process answers to key questions must be given:

• What assumptions were made about the new company when the acquisition process began?

Are they proving correct?

• Is the acquisition action plan developed prior to closing the deal, now being implemented, meeting

the stated performance goals?  If not, why not?

• Are the forecasted pre-closing goals as being implemented prove as realistic now as they were on pre-reclosing

the deal?

• Have resources allocated met plan?

• Have any surprising significant operating problems shown up?

Do we have any strong resistance to cultural integration?

Communications

Senior executives and key Directors, should be communicating in some detail the corporate strategy

for the acquisition throughout the corporation included the new addition, to the customers, suppliers and related Banks. Uncertainty, and muted communications can damage the relationship of the corporation with both it internal and external communities. An acquisition always generate, for a period of time, a certain level of uncertainty and fear about major changes and the effects of those changes in the relationship with various constituencies of the corporation. Therefore meaningful communications are necessary to build confidence behind the strategy by the corporation’s employees, customers, suppliers, bankers, and investors. Communicating the corporate strategy will allow the company’s critical constituents to have a clear view as to the company’s strategic direction and understand where the company is going.

Before and after the Accounting & Financials

An experience executive with a proven sense of what makes a business sustainably profitable should be able to look at the acquisition candidate during due diligence and get a “feeling” whether the candidate has realistic future added value to the corporation before the process becomes very involved and costly.

Here a board can make a significant contribution to the M&A’s success by looking beyond the reports and the numbers.   An experience accounting / financial executive can help transform financial due diligence findings into business / management language, and assist the board to make the right and relevant policies/ decisions to increase the probability of  success of the acquired company and its integration in to the corporation.

Minimize Risk

Experienced M&A executives can and should play an active role in planning and conducting the acquisition process. Evaluating the potential of intellectual property theft and see to it that data security breaches during the M&A process do not take place. It is both a fiduciary responsibility and good business practices for senior executives and key board members to stay diligent on this issue.

During the M&A process there a level of confusion, anxiety and fear among the corporations employees as well as of those of the acquired company as the continuity of their employment. Quite often, even a rumor of an acquisition, will make salespeople taking customer databases to their homes; engineers downloading software codes they   believe they “own”,  and rumors could create a very unsettling atmosphere within the company and often also to the outside relationships.

Frequent communications to the company’s constituencies to create realistic expectations and providing regular updates on the acquisition process must take place.

Review before Closing the Deal

The senior executives and key board members need, at various points of the acquisition process, to pull themselves out of the minutia and begin to ask vital questions prior to the closing of the deal in order to determine whether deal should be made:

  • Are the financial projections realistic and the synergies as clear today as they were when the decision was made to pursue the N&A candidate?
  • How will the acquisition affect the overall market dynamics for the core business?
  • What is looking good and what is not?
  • Is the acquisition team doing well or it should be changed?
  • Are the assumptions the “go ahead” was based on to proceed acquiring the candidate still valid?

The board and executive management should be engaged in an effective dialogue prior to the final decision of closing the deal. The continuous validation of the original assumptions and filtering out any doubts early on, will increase significantly the probability of success in attaining the estimated pre-acquisition value of the acquired company.  

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