How do I know a merger or acquisition is right for my company?
HAMED SHAHBAZI | CEO, TIO Networks
Making the decision to bring a new company into the fold through a merger or acquisition is a big decision that many underestimate. It’s not simply a matter of whether the deal looks good on paper; considerations must be made about whether the two companies are a good fit, from a customer and employee perspective.
The first question an acquiring company should ask is whether it sees a strategic and cultural alignment with the potential acquisition. When bringing a new team into the fold there can be significant growing pains, particularly if the culture, work environment and systems in place are divergent from the start.
Be very clear with your corporate vision and ask yourself: what is your objective? Are you looking to grow revenues or customers? Are you acquiring based on a buy-versus-build decision within a certain aspect of your business? Does the M&A opportunity pole-vault you into a new, desirable market, or is it defensive in nature? Generally speaking, any kind of M&A bears significant risks, so one should really be looking for a strategic fit.
Another aspect that is often overlooked is the company’s shareholder values. If you view an M&A like a marriage, shareholders are the in-laws that are coming in with their own sets of priorities and values. If these don’t align with those of your current shareholders there’s going to be a lot of outside tension in that marriage .
Shareholders are your best cheerleaders when things are good and your hardest critics during downturns. The key in a potential M&A is to ensure that all shareholders understand your strategic vision and have faith in the company’s long-term gains even during times of short-term loss.
KAVITA KENT | Co-owner, Balance Medical
Some say when opportunity knocks, you answer the door; I say look through the peephole and decide carefully if it’s worth your time. A merger or acquisition can be an exciting venture for any business that is looking to expand its customer base, increase visibility and ultimately raise profit share. The advantages can be plentiful. You can potentially reduce costs through shared marketing budgets, reduce competition and gain valuable assets for business development, to name a few. With every significant business decision, however, come associated risks. Ask yourself these questions:
Do our corporate cultures align? Understanding the framework in which the company you wish to acquire has operated is key to knowing whether you can exist in harmony post-merger.
Have I assessed this company’s true net worth? While lawyers and accountants can perform the due diligence to assess purchase agreements and determine book values, only you can read through the line items.
Is there room for growth? When two businesses with a similar focus merge, your hopes for market expansion could be limited. If the two companies together already control a significant portion of the available market share, there may be difficulty attracting new clients. On the contrary, the new, larger organization can pool resources to exhibit a more visible presence and potentially dominate market share.
What if things go wrong? Thinking about the unthinkable is always in your best interest. Allow yourself to plan a strategy if the merger fails.
What is my intention after this M&A? A successful merger is one where the principals look beyond economies of scale and focus on a blueprint to optimize new streams of revenue and fill gaps in resources.
CHRIS McGRATH | Co-founder, ThoughtFarmer
As soon as a merger is announced, companies need to communicate constantly to manage change. Due to the complexity involved in the financial, legal and administrative aspects of closing an M&A deal, most executives forget about crafting a communications plan until it’s too late.
A merger announcement creates enormous disruption within the organizations, but it also provides an ideal opportunity to connect with employees. A communications plan needs to roll out as soon as the merger is announced – at a time when employees are feeling most anxious about the change. During this time, employees are looking for direction, clear leadership and information. Take advantage of the level of interest to communicate your message and vision for the new company.
Communication is key to successful cultural integration, or what I like to call the “social merger.” Lack of a social integration during a merger can have severe financial consequences, including loss of productivity, decreased employee engagement and loss of key talent. The failed eBay-Skype merger is one familiar story of culture-clash perils. EBay was reported to have a conservative, bank-like culture, whereas Skype believed in democratization, collaboration and disrupting the status quo. The integration of these two cultures was unsuccessful, resulting in multiple management teams, high turnover and ultimately eBay selling off Skype at a $700 million loss.
Having a thorough understanding of the current state of both companies is essential for a successful blending of two corporate cultures. Planning for the social aspects of the merger at the outset makes employees feel respected, valued and engaged – resulting in greater employee retention and better performance.