Two or more companies looking to consolidate their businesses into one entity do so via mergers and acquisitions. For an acquisition, one company buys another company outright. The buying company still exists at the culmination of the deal and takes on the other firm’s interests, assets, and customers. A merger sees the two companies combine to create a new and unique business entity.
M&A deals typically negotiate cash, stock, debt, and other assets. These deals are applied to market expansions, market share diversification, cost reduction, or talent acquisition. While it does come with considerable benefits, the process also raises significant challenges. The following are a few ways to ensure a smooth business transition for an M&A deal.
Set Up Your M&A Team
You will need a team of experienced professionals to help ensure as smooth an M&A deal as possible. This team includes investors, lawyers, accountants, and financial advisers. You will also need communicators, managers, and other professionals to deal with infrastructure changes.
Unless your business is in the process of an aggressive acquisition phase, you are unlikely to have the expertise required in-house. Fortunately, you can outsource a lot of the process to a specialist firm. This allows you to access experienced and qualified individuals that you may otherwise be unable to reach. It also means utilizing the service’s streamlined processes and benefiting from the reach and network they have in place.
Determine Motives
Ultimately, an M&A deal aims to increase profits. However, there are many strategic ways businesses can go about this. Before your business starts to identify potential buyout targets or merger partners, you will need a clear idea of your motives. Common motives for mergers and acquisitions include:
- Market Expansion – Buying businesses in other geographic markets is an effective and rapid way to enter that market. Spanish bank Santander has taken this route several times, buying banks and financial institutions in more than 20 countries to become a leading name in the global banking industry.
- Diversification – Diversification through acquisition sees businesses buying companies in unrelated markets to further expand their product or service offerings. For instance, Google bought Nest to enter the smart home market, while Amazon’s acquisition of Whole Foods saw them move into the grocery delivery market.
- Money Saving – M&A deals can lead to considerable cost savings. The businesses may be able to merge operational departments, for example, while also potentially enjoying improved economies of scale that come from having the buying power of two combined companies.
- Talent Acquisition – Talent acquisition through M&A sees one company buying another to gain access to the talent they employ. Examples include Google buying Android to access their app developers, plus Disney’s Pixar acquisition to further its animation credentials.
- New Technologies – Disney’s acquisition of Pixar was driven by many factors. In addition to accessing highly skilled animators, the purchase connected them with Pixar’s cutting-edge and industry-leading animation technologies.
- Licensing And Distribution – Vodafone has been involved in several of the world’s biggest M&A deals over the past few decades. In 2005, it bought the Turkish mobile operator, Telsim. This gave Vodafone a license to offer services in the Turkish market without having to go through a potentially lengthy and challenging license application process.
Plan Integration As Soon As Possible
Typically, a merger aims to create a single firm that operates as one unit. This means combining many different elements of the two businesses. For instance, HR and infrastructure can be combined to merge people and processes in both businesses. Also, the best of both worlds, including targets, priorities, and metrics can be fused.
Early in the M&A process, you need to identify these differences, determine how you will overcome them, and then plan how to integrate the companies and their elements so they operate a single, cohesive unit. Too many M&A deals leave this step until after the merger is complete. This is one of a few reasons many M&A deals fail after the fact.
Outline The New Structure
Merging two companies sometimes results in squeezing two people into one job role. In some cases, this might be necessary, as you might need to increase the size of the sales team. However, it is unnecessary in most cases. You won’t need to double the HR team, and it is unlikely that you will need twice the number of IT employees. You may also need to find ways to incorporate twice as many managers and team leaders, and this can be a real sticking point once the deal is complete.
To ensure a smooth transition, you must create a new structure and governance model for the potential new business before due diligence is completed. This includes deciding on the management team, company hierarchy, general personnel, and portfolio layout.
Assess Business Cultures
A clash of two inherently different business cultures can cause deals to fail. Even factors like work-from-home policies can prove challenging without company-wide alignment.
Consider that employees from one company might be afforded hybrid working options, which may be prohibited in the other firm. After a merger or acquisition, hybrid workers will likely be unhappy if told to resume at the office every day. While negotiating an M&A deal, consider the official and unofficial cultures of the two companies and determine how best to ensure alignment.
Utilize Parallel Workstreams
The newly formed business is likely to have new workstreams and processes. It might be unreasonable to expect these to be implemented immediately without any problems or setbacks. One way to counter this potential problem is by running parallel workstreams. This means running old workstreams alongside new ones or running both existing workstreams from the two unmerged companies while new workstreams are developed and introduced. This ensures that work does not stop and remains efficiently done with less room for errors. It also means that process developers can study the existing workstreams and adapt their new processes to match.
Ensure Processes Are Streamlined
Use parallel workstreams as an opportunity to analyze existing processes. Have process architects liaise with IT professionals, team leaders, and other stakeholders, and use the opportunity to improve the procedures in use.
Business process optimization requires the following steps:
- Map out processes
- Collect and analyze process data
- Identify pain and choke points
- Define business and stakeholder objectives
- Monitor process performance and measure results
- Train stakeholders to implement new processes
Several of these steps are also part of the M&A process, which means you can enjoy double the benefit of the work put in.
Offer Proactive Communication
There will be objections from some stakeholders. These objections are typically driven by fear and exacerbated by poor communication. Once you’ve got a clear picture of the merger processes and how they will affect everybody, proactively communicate your findings. While some redundancies may be inevitable, you want to retain the best talent. This is only possible through proper communication.
You also must be honest. If you promise there will be no job losses or redundancies, any variation from your promise could cause the remaining employees to lose trust in you and the company. This might push workers to look for other employment opportunities.
Engage Stakeholders
Stakeholders are all the people who have some interest in the merger. This includes management and staff, but also suppliers, business partners, lenders, and a host of other personnel.
While you might not want to give too much away before a deal is completed, you should engage with your most important contacts whenever possible. They can help with the process and provide valuable insight into how best to proceed. If you get them involved, they feel a lot less threatened and will maintain more of a vested interest in ensuring the merger is successful.
Highlight The Benefits To Individuals
Merging two companies can mean greater reach, increased revenues, and improved profits. All of these are important to the success of a business and can also represent opportunities for talent within the company. When talking to employees and stakeholders, try to identify the benefits for each individual and then communicate these efficiently.
You could offer a clear path to advancement or implement a change in working culture to offer greater working flexibility. Benefits include improved job security over the long term, especially when specific metrics are met. Speak to team leaders, identify potential pain points for the individuals, and then highlight the benefits they will enjoy following the deal.
Minimize Customer Disruption
Your customers and clients don’t care if your business undergoes a merger or acquisition, as long as you continue to meet their needs and expectations. While there might be some disruption within the business itself, this disruption must remain internal.
Do what you can to minimize the impact on customers. This may include outsourcing work or paying overtime to help overcome the initial workload bump. You must plan for this beforehand so you don’t lose customers at such a critical stage or cause your revenue or reputation to plunge.
Audit Suppliers
Merging companies is a great opportunity to take stock of processes and relationships. You can begin by auditing suppliers since a merger might mean that the new company does not have to retain all the suppliers in both businesses. You should also audit existing deals and explore a potential extension or alteration of the deals to match the needs of the new business entity. An option to consider is using the business’s new elevated buying power to get better terms. This is also a good opportunity to increase revenue.
Monitor Developments
Establishing key performance indicators (KPIs), developing metrics, and creating feedback frameworks for all stakeholders is essential. As the deal progresses, monitor the KPIs, metrics, and feedback, to find areas that need improvement. Also, all team members must be adaptable enough to apply the information appropriately to benefit the business.
Announce The Deal Properly
Announcing the stages of the deal to stakeholders and the general public is a good idea. Also, you should outsource public relations if neither business has an established PR tens. A merger is a good opportunity to enjoy some additional publicity, plus an extra bump that can help ensure the deal is viewed publicly as a positive move.
Issue press releases, ensure they reach the right channels, and use them to highlight the reason for the deal while highlighting any potential impact on stakeholders. You should also take the opportunity to add a message to important stakeholders like employees and business partners.
Conclusion
Up to 90% of M&A deals fail largely because of poor planning or inadequate communication. You are essentially attempting to combine two groups of people into a single business while appeasing all parties and maintaining the best possible work standards for clients.
While there are substantial benefits to a merger or acquisition, the process requires both businesses to overcome several challenges along the way. This is why hiring a dedicated M&A specialist is ideal.
