Member up Sills Cummis & Gross PC
If your company is considering a merger or acquisition as a target or buyer in 2023, here are some tips to look out for:
1. Identify a target.
If you’re potentially looking to take over another company, the first thing you need to do is identify a target. To do this, you want to look at the industry and understand who the respective competitors are in that space. In addition, you should try to explore unique features and geographies of different potential targets.
Consider whether it complements existing parts of your organization. Does the target excel in areas your company lacks? Does the target have distribution centers in parts of the world that your company wants to target?
As a business owner, if your company is the target of potential acquisition, you should ask yourself the same questions (but from a slightly different point of view). How can the resources of this larger company help your organization excel and grow? Do the resources of the potential acquiring organization seem attractive to the future of your company?
2. Analyze financial data and perform due diligence.
Once you have either identified target companies for potential acquisition or your company has been identified as a named target, the next step is financials and due diligence.
At this stage, acquirers must decide how to conduct due diligence – with a law firm? an investment bank? main internal offices? all of the above? It is essential to conduct thorough due diligence to avoid any surprises after closing the deal. Some items that require attention during this time include the target’s financials (including profit margins, income, and debt).
In addition, as a business owner of the acquiring organization, you should focus on the assets and liabilities of the target company, including equipment, intellectual property, or real estate. For optimal merger success, you should also analyze the target company’s customer base, market position and growth potential.
As a target organization, you need to ensure that all of your internal metrics and processes are in place to ensure the best chance of success at this stage.
As the acquiring company, your next step is to draft a letter of intent (LOI) or memorandum of understanding (MOU) outlining key terms and contingencies for a potential deal. These key terms and contingencies include the due diligence period, the funding contingency period and/or an approval contingency period (if special licenses or permits are required for the acquirer to operate the target upon completion of the transaction).
3. Integrate the two companies.
As a business owner, once you’ve identified your target for acquisition, you’ll need to explore how to integrate the two businesses. On the other hand, if your organization is potentially being taken over, it is paramount that you view this from your point of view. Both parties should consider their individual and collective interests when evaluating integration options, including what the culture is like in each organization.
In addition, you want to think about the management style of the other organization and what it would look like to merge with an organization with that management style. Which key figures remain? If you are the target company, how will employees in your organization respond to proposed changes?
After considering these initial questions, the next step for the acquirer is to create a written business integration plan. This plan may include items such as whether the acquirer will move all of the target’s executives to their headquarters, whether a personal, remote, or hybrid work style will be employed, whether the target’s footprint will be reduced (office space), etc.
At this stage, it is critical that defined policies ensure that the target is managed as a top organization. As the owner of the target business, you should be ready to understand how the acquirer intends to streamline the organization’s systems and how this fits into the larger plan.
4. Drive mutual success and leverage brand equity.
There are countless opportunities to leverage the brand equity of the target company. For starters, you need to decide whether you want to incorporate the target directly into your company or keep it as a separate subsidiary (and keep using its own name). At this stage, you can explore ways to integrate the target’s product or services into your company’s offerings. Ideally, these integrations would create more opportunity and value for your customers, shareholders, and team members.
It is important to understand the goals of both organizations in this process, as well as the strengths and weaknesses of each. Ideally, the merger or acquisition creates opportunities to leverage the strengths of both organizations to form a more successful parent organization.
Here, the success of an M&A deal depends on careful planning and careful, measured execution. Whether you are the acquirer or the intended party, it is important to approach the potential deal from all angles and decide whether the merger or acquisition makes sense from a financial, cultural and services perspective. By keeping the tips above in mind, an M&A deal can be a powerful way to achieve your goals as an entrepreneur in 2023 and beyond.
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