Mergers and acquisitions (M&A) are a routine part of business growth and development. In an M&A the assets of two companies, or the companies themselves, are consolidated to benefit both parties. Successful M&A combine two entities in an expedited approach in order to maximize organizational value while minimizing disruptions to existing operations.
A merger occurs when two separate entities, generally of similar size and scope, join forces as relative equals to create a single organization. In an acquisition one entity, generally the larger of the two, purchases another entity.
Strategic planning
The first step in the process is deciding whether or not your business would benefit from an M&A. Basic considerations include indentifying the scope of the business and how it can be expanded. Review the direction of the business and possible advancement opportunities along with potential M&A costs. A strong M&A strategy can actually further the overall goals and objectives of the business by highlighting key areas for growth.
Target screening
Once your business has decided to pursue an M&A, you can develop basic targeting criteria and a screening process to use before beginning to look at potential businesses to acquire. Generally a search team is appointed to begin indentifying potential acquisition targets. Once targets are identified, the team evaluates how well the potential target meets search criteria. If interested in moving forward with the acquisition process, the next step would be initiating contact between parties. If both parties wish to move forward a confidentiality agreement is a must to protect the parties involved.
Due diligence
The due diligence step is key but often rushed or overlooked. This stage involves investigating, evaluating and assessing the target company. The due diligence process should clearly identify areas of the acquisition that provide value and any areas that represent risks. At this point is it entirely possible to find a Go/No-Go problem that would prevent the deal from going forward. Any risks found can be used to negotiate terms and an offering price. Any regulatory approvals needed to execute the transaction should also be reviewed.
Transaction execution
When finalizing the actual purchase, information gathered during the due diligence phase should be used to develop a business valuation. At this point negotiations for the purchase begin. The transaction can be financed in cash, stock or a combination of both. Many M&A transactions are completed in stock to avoid tax consequences. When a stock transaction takes place an exchange of share certificates happens and new shares for the stock are issued to share holders.
Integration
Integration between the two organizations is the final step of the M&A process. Although it is the last step, integration can be problematic if not properly planned. Before attempting integration, things such as the level of integration and expected time frame should be discussed. Both enterprises will also need to discuss how to maintain daily operations while communicating the acquisition to employees and customers.
Even the best laid plans go awry and M&A are not immune from problems. Although many potential issues and solutions will be identified during the planning process there are sure to be a few hiccups along the way. When creating an integration plan make sure to consider organizational cultural differences, the leadership in place and overall focus.
