Ready to Strike a Deal? Five Best Practices to Ensure Repeatable Success in M&A Transactions

David HauflerDavid Haufler, Managing Director Global M&A Practice Leader
Ryan ReentsRyan Reents, Associate Director Transaction Services

According to a recent survey of executives, over 70% of companies plan on being involved in a merger or acquisition (M&A) in 2021. This is a welcome change from 2020, when deal value globally dropped 5% from last year, to $3.6 trillion – the lowest since 2017. As activity begins to quicken, organizations should view a potential M&A not as a long shot but as a likely path toward growth, and should take a proactive, rather than reactive stance to transaction readiness.

There is a lot of pressure for a CEO to get a merger or acquisition right and to avoid failure at all cost. This pressure can be reduced and the chance of success increased when the company has a clear vision of what it wants to accomplish with each transaction and has identified the path to get there. Below are five best practices we recommend all companies consider as soon as, or even before, they have identified a target.

Define the Future State

In preparation for a transaction, it is important to first look toward the finish line and understand the desired future state of the organization. Ask the question: “What is it that we want to achieve in both the short term and long term?” The answer to this question will help the organization to identify “quick wins” immediately following deal close, while keeping a clear focus on the target operating model – the future state. Once both short-term goals and target destination are identified, organizations can work backwards to assess any gaps between that and their current state and outline the steps needed to get to those milestones.

Identify Needed Resources

After answering the question of “what” the goals are, the next question is “who” the key stakeholders are that may be involved in the process. By asking “Who will help us do this?” organizations can begin to assess any gaps they may have with regard to transaction-related skills, talent and experience. It is imperative to identify key parties that will be involved in each area (or “zone”) of the transaction process and ensure that they understand their specific roles and responsibilities. M&A is a team sport, and it takes a variety of people with different strengths and skill sets to pull a transaction together successfully. Success is largely dependent on the synchrony between top-down leadership, which provides the strategy, and bottom-up planning, which will drive the execution. More often than not, it’s in the bottom-up, functional execution and actual integration of two organizations where a transaction ultimately fails or succeeds. For this reason, it is important to insert capable individuals with prior experience in the early, pre-deal stage of the transaction as they can foresee potential integration problems early on and address them or prepare the organization to address them down the road.

Address Process and Capability Gaps

After determining the “what” and “who” of transactions, organizations must turn to the questions of “how.” How will you operationalize the “what”?  Are your existing capabilities and current capacity enough to handle the increased workload that arises when transaction-related activities must be performed in parallel with daily operations? Do you have established processes in place to tackle everything from setting and communicating strategy to performing due diligence to handling integration activities? Are there proper tools in place to support and enable employees to execute new duties stemming from the transaction? Answering these questions will help to establish a capabilities baseline and provide a window into improvement opportunities needed.

Create a Governance Structure and Measure Progress

Organizations should adopt a governance structure for the transaction that is appropriate to the organization. This will help to strike a balance between moving fast and achieving the deal rationale. The deal rationale is the reason the transaction was undertaken – the expected percentages for growth, profit, synergies, etc. This should be distilled into key metrics to ensure that the organization is managing its progress toward its target state. The deal rationale is a reminder of the deal strategy and can serve as a guiding principle for the organization’s integration efforts.

Document the Process

Last but not least, it is important for companies to document their process and make it both repeatable and scalable to fit their future needs. Organizations can do this by developing transaction playbooks that help to centralize and document institutional knowledge and critical deal points. These playbooks at a minimum should contain rules, procedures, tools and points of contact critical to the organization’s transaction process. However, it’s not enough that these playbooks merely exist; their existence should be communicated to key stakeholders who should understand how the playbooks can be used in future deals, i.e., to bring key individuals up to speed quickly in a transaction or to onboard new employees who may require basic transaction training. By linking and referencing useful tools and templates, playbooks can become an invaluable document to organizations enabling them to move with speed and agility in a dynamic M&A market.

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