Planning For M&A Success

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While I’d like to talk about planning for M&A projects, from my experience it’s a bit of an oxymoron (think postal service). I’ve been involved in some significant deals, spanning more than a year of work, and despite the amount of planning I did, it was always “saving the universe” at the end. That’s the nature of merging companies, management teams and cultures. The planning we did was valuable and necessary, and it enabled our clients to achieve their deal objectives, but there were lots of late nights. Despite those nights, having a plan going in was essential in managing and coordinating the various teams we used to get the deal done.

When planning for an acquisition, I like to work backwards from the end asking these key questions:

1) What are the synergies the acquirer will realize that make the deal a success?

2) How will the first 100 days of the merged entities contribute to that success?

3) What do we need to be open for business on Day One?

I refer to M&A deals as “programs” not projects. A program is a related, dependent series of projects, and in my experience that’s what an M&A engagement was. This includes projects for boards, management teams, organization, technology, customer, supply chain, accounting, tax, legal, HR, and Federal and state regulatory matters.

Doing an M&A deal is time consuming and expensive, so you better make sure you understand what success looks like, and how you will achieve it.

I refer to the benefits springing from an acquisition as “synergies,” things that increase the value of the separate entities.

Synergies frequently involve headcount, but can also involve products, capacity, customers, vendors and office space, to name a few. Frequently, “hard” synergies are cost savings, and “soft” synergies are often revenue increases or other intangible improvements. Included in the budget for the non-recurring deal expenses are “costs to achieve” the synergies, meaning the costs required to implement projects that will deliver the synergies (particularly the hard synergies).

The goal of the first 100 days is to ensure business continuity, confirm synergy targets and define the target operating model, while following a critical path to best mitigate integration risks. Your new organization steps into their roles, you introduce the combined opportunity to customers and suppliers, and lay out your road map for moving forward.

Day One involves preparation of a readiness checklist beforehand, and a lot of work on management team, organization and systems. An issue I’ve encountered with preparing for Day One is that until Day 0 (the close) happens, Day One might not happen. So how do you insure against the seller backing out? That’s why there are breakup fees. I’ll discuss this in more detail next week.

COVID LOAN UPDATE

The current stimulus, version four, talks are not moving along like the last three. As we move closer to election day politics seem to play a more important role. The sticking points: the $600 per week Federal unemployment benefit that expired July 31, and about $1 trillion in aid to state and local governments. Areas of apparent agreement: another direct stimulus check and changes to the PPP program we have all grown to know and love. Stay tuned.