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By: Brian Slipka
At the start of 2022, advisors and analysts were optimistic due to the fact that 2022 was a record year for global mergers & acquisitions (M&A), with more than 60,000 publicly disclosed transactions breaking $5 trillion in value for the first time ever.
With record-level successes in the M&A industry, a significant question remains—how can buyers and sellers alike ensure successful transactions?
M&A transactions can present a complex and challenging process for companies of all sizes, but those in the lower middle market (revenues of $5 million to $150 million) may face especially acute challenges. Several key factors contribute to a successful M&A transaction for companies facing these challenges.
Clear Goals and Objectives
Whether someone is looking to acquire another company to expand their product offerings, enter new markets, or simply increase their company’s scale and scope, it is important to understand what one hopes to achieve through the transaction. It is essential to have a clear and well-defined strategic rationale for the merger or acquisition. A thorough understanding of a company’s objectives can help ensure that both the buyer and the seller are on the same page and that the transaction price is fair and reasonable. This will help identify the right target companies, negotiate the best transaction, and ensure that the transaction aligns with everyone’s strategic goals.
Due Diligence
Successful transactions are the result of successful due diligence—the process of investigating a target company and its assets to confirm all details, such as reviewing financial statements and operations, verifying assets and liabilities, assessing legal and regulatory compliance, and evaluating management and company culture. Both parties should conduct a thorough investigation into the financial and operational aspects of the other company before proceeding with the transaction. This process helps ensure that the potential transaction will be profitable in the long term and that both companies are aware of any potential issues or concerns prior to the transaction.
Communication
Communication and coordination between parties are critical to the success of any M&A transaction. The process can be complex and involve multiple stakeholders, including management teams, legal teams, and financial advisors. Communication and coordination will help identify and address any issues that may arise, as will having a plan in place to manage these issues effectively. Active engagement in communications will help ensure that everyone is on the same page and that the transaction is moving forward smoothly.
Open-Mindedness
M&A transactions may include unforeseen obstacles and sudden changes in the elements of the integration at any time. Remaining flexible and open-minded is essential to maintaining the smoothest possible negotiation. This will not only help buyers and sellers identify opportunities in seeking agreements but also add adaptability when challenges arise. It may include structuring the transaction as a partial or staged acquisition or using a combination of cash and equity to finance the transaction. It may also include creative solutions such as an earn-out structure, where the seller is paid based on the future performance of the company. Remaining flexible and open to creative solutions can often lead to a successful M&A transaction.
Experienced Advisors
Lastly, having a team of experienced advisors can make a significant difference in the outcome of an M&A transaction. Experience in the specific industry or market can help with navigating the complexities of the process and ensuring that the transaction is structured in the best possible way for everyone involved. Effective transaction structuring is also crucial for success, as it can help align the interests of the acquiring and acquired companies and ensure that both parties are comfortable with the terms of the transaction.
A successful M&A transaction requires a clear and well-defined strategic rationale, thorough due diligence, open and transparent communication, proper integration and post-merger management, flexible willingness to make changes as needed, and a strong and experienced team of advisors. With these key ingredients in place, an owner can successfully navigate the M&A process and achieve the desired financial and strategic goals.
At True North Mergers & Acquisitions, we believe that if we help people, success will follow—for everyone. Our exceptional focus on business founders outdelivers ivory-tower, top-down competitors. We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down with you.
Brian Slipka is the CEO of Minneapolis-based True North Mergers & Acquisitions. More information about True North M&A and Slipka can be found at www.tnma.com.
