When it comes to mergers and acquisitions, business schools fail to prepare their students for the realities of how business leaders operate in the real world. Frequently, the decisions and outcomes of mergers and acquisitions (M&A) depend heavily on emotions, relationships, and timing. The most prosperous and successful opportunities often occur when a company invests time and thought into building strong, genuine relationships.
M&A’s have always been big business and it appears that trend is only growing. 2016 racked up $678.5 billion in M&A deals, the highest number in any single year of the past decade. The appeal of an M&A varies, it might be to fill a gap in the company’s resources or capabilities, or to help the company enter a new market.
While the financials of a potential deal might look beneficial to both parties on paper, numbers do not guarantee the success of a deal. Here are some tips to help you successfully navigate the unforeseen human factor that all too-often comes into play when trying to make and close a deal.
Don’t rush the process
M&A’s don’t happen overnight. Taking the time needed to get to know a fellow business leader and their company is essential to any potential decision to engage — patience does pay off. Something as complex and affecting as a merger or acquisition should not be done in haste, as the magnitude of these decisions can leave lasting impacts on the future success (or failure) of the purchasing company.
For example, when my previous company was acquired I spoke with the other company’s CEO several times before deciding to move forward with a merger. During this time we were able to assess each other and get to a place of mutual respect and even more important, trust. This is a difficult process. It takes a lot of time and energy from both teams.
Beyond conversations between myself and the acquiring CEO, it was important to me to have my team involved in the process to some degree. During the assessment period, a large portion of my team was invited to spend several days at the acquiring company’s HQ. Here we were able to spend time with people from different departments, brainstorm ways to integrate the teams and gain a full understanding of what we were getting ourselves into.
More important than that, we were able to gain insight into the company culture and ensure that it would be a good fit not only for us but for the rest of our team as well. Taking the time to assess these things early in the process can help avoid a lot of headache down the road.
While I had the luxury of time before needing to make a final decision, that isn’t always the case. While avoiding a rushed M&A is key, it is equally important to consider timing. The peak of your success, or perhaps right before, is the best time to begin pursuing M&A conversations. If you’re looking at your numbers and can foresee this peak in the next year to six months, that’s when you should begin the process of hosting conversations.
If you have a profitable and growth-centric future, there’s a much more substantial and competitive appeal to your company than if your best days are behind you. Once you plateau or begin to taper off, it may be too late to garner the interest and valuation you want.
Set clear expectations
As the selling company, determine your non-negotiable stipulations. Is keeping every single employee on the payroll important? What about culture, perks, and benefits? Do you have requirements on how or when your technology or services are folded into the buying entity? Just as you prepare for new business pitches or presentations to your board, you should prepare for a merger or acquisition by setting expectations on both sides of the table.
Sometimes this can cause ‘negotiation headache’ which is why it’s important to build that trusting relationship with the acquiring company. For me, I knew going in that any hurdles we ran into would likely be overcome by simply jumping on the phone to have a conversation because we had taken the time to build a rapport with one another.
From the buying side, make it a priority to hear these requests and must-haves, and do so with respect. Empathizing with the opposing members in a business deal is a valuable, and often understated, practice. Set the expectation with the to-be-acquired company that you hear them, and plan to work with them to ensure as many of their desired end results are achieved as possible. These are the people and processes that compelled your interest in the company in first place, the last thing you want to do is sign the paper and dissolve their essence.
Invest in building relationships
The CEO of the potentially acquired company is more than just an executive, the CEO is a person, a daughter, a son, a best friend, and perhaps a father or a mother. CEO’s and founders have spouses, friends and families who often possess considerable influence in the company.
While these significant others might not be decision makers, they are decision influencers — business leaders trust their opinions. In many cases, the buyer underestimates these relationships. Invite significant others to dinner with key executives in an effort to acknowledge that while they are not at the conference room table, they are part of the conversation.
Most companies are not on the constant hunt for the next organization to acquire, rather, many M&A opportunities are born out of existing network connections. There are a lot of business facets that hinge on your ability to create and maintain relationships and there is always more to a major decision-making process than what is on paper.
A signed deal doesn’t signify completion
People are creatures of habit. Completely uprooting an employee’s processes, location, and reporting managers can have a catastrophic effect on an employee’s ability to operate. M&A managers need to express flexibility in their approach to onboarding new teams. For example, when my team was onboarded to the acquiring company, we decided to maintain the incoming team’s current reporting structure — until they become comfortable with their surroundings and could adjust to changes easily.
We wanted the new team to feel welcome and to know their expertise was trusted. By doing this we were able to merge our teams much faster and build a trusted relationship right away.
Not all M&A’s will work out, but if you consider these tips when taking each careful step, you’ll have a much better chance of a cohesive, positive and productive outcome.