CEO of eCapitala fast-growing fintech company transforming finance for small to medium-sized businesses.
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As late as 2021, mergers and acquisitions (M&A) were at an all-time high, with $5.9 trillion in transactions announced, according to Bain & Company. Since then, the pace of mergers and acquisitions closing has slowed, largely due to inflation, rising interest rates and geopolitical conflict.
However, these market conditions may increase the number of companies willing to be acquired, making now an ideal time to look at your own M&A strategy and prepare your company for opportunities. Mergers and acquisitions can be a strategic way for companies to drive growth, gain competitive advantages, increase market share and influence supply chains.
Over the course of my career, I have led more than two dozen successful acquisitions. These acquisitions served to accelerate growth, expand into new industries and acquire technologies that have advanced our business and expanded the services we can provide to our customers. While it is often said that between 70% and 90% of mergers and acquisitions fail, in my experience there are several keys to increasing your chances of success.
1. Participate in a violation.
It cannot be emphasized enough that preparation is your best defense to avoid deal frenzy and ensure you make solid analytical decisions. Evaluate your salesperson by assessing their strengths, weaknesses, opportunities and threats, and learn as much as you can about their reputation and habits to anticipate their moves during negotiations. In addition, do a solid valuation analysis and know your walk-away price.
2. Make use of technology.
Like most business functions, the pandemic has significantly impacted due diligence. Previously, it often involved a lot of travel and personal performance. At the start of the pandemic, it transitioned to fully digital and has now evolved into a hybrid model. Technology can be used to save valuable time and keep the process moving, while data and analytics capabilities are essential for improving processes. Technology provides many efficiency improvements; however, there’s no substitute for sitting on the other side of the table and building rapport, so don’t let the convenience of video breed complacency.
3. Develop your process.
A merger and acquisition is significantly more complex than just matching a price, so you need to be disciplined in your approach. Develop a process that you follow for every deal. However, you can learn new information in the process, so you should also maintain the flexibility to adjust your objectives and tactics as the deal evolves.
4. Understand your unique proposition.
Focusing solely on the benefits an acquisition will bring to you, the buyer, can often lead to a deal failure, so enter into negotiations and also consider what you uniquely have in mind for the seller. Do you offer strategic management, organizational or process disciplines in addition to capital? You also need to consider the opportunities and challenges of post-closure consolidation and alignment of cultures. If you are in “take” rather than “give” mode, it will be easier for the seller to increase the price or terms, especially if there are multiple suitors.
5. Learn to give in.
Concessions are important, and sometimes essential, to keep the process moving and show a genuine interest in working towards a mutually beneficial deal. To have more room for negotiation and concessions, include deal terms that are unrelated to price. If you make a concession, make sure the other party understands the value. You can also make a conditional concession so that they have to meet a condition in return.
6. Build trust with transparency.
Secrecy can keep the other party on their toes; however, being open about your interests and motivations — without disclosing financial or other sensitive information — can build trust and help build a successful long-term relationship. Transparency can also reveal mutually beneficial compromises, creating value for all.
7. Set up your watch. Time is everything.
Timing is a thin line that you have to go through throughout the process. You want the negotiation to be one step at a time and give the other party time to react as soon as you make a move. Otherwise you could be negotiating against yourself. Deadlines can help the process, but you don’t want them to come across as ultimatums. Time also helps ensure that both parties agree on mutually beneficial terms; however, too much time can lead to fatigue and negative emotions.
An ambitious and impactful M&A strategy is at the heart of how I built my business; through acquisitions I have combined a mix of independent, strong companies into one unified company. Despite – or perhaps with the help of – the current downturn, I see M&A remain an important lever that companies can use to help grow and achieve beyond their current capabilities, especially in the evolving economic environment.
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