It’s an exciting time in any company when a certain level of success has been achieved and it opens the door to the possibility of merging with or acquiring another organization. The merger and acquisition process (M&A) can be complex and is often wrought with potential hazards along the way if not executed properly.
The highly knowledgeable team at SOGID™ Management Consultants has many years of experience working with Merger and Acquisition Advisors and guiding our clients through successful transactions in a wide variety of industries. We are often asked to outline the initial steps involved in navigating the internal M&A process and describe what strategies are involved during each phase of the project. In the end, regardless of the industry involved, the goal of any M&A is for a company to emerge stronger and create as much value for the newly formed organization as possible.
In this blog, we will look at the 5 initial steps that should be followed in order to execute a successful M&A transaction.
Determine Market Growth Opportunities
For an M&A to be successful, a business’s management must carefully evaluate the potential market growth opportunities in their industry to justify the creation of a larger foot print in the marketplace. It is important to analyze data to make certain that an expansion makes sense from all vantage points. This data must be scrubbed, actionable and as current as possible. It should not only include an organization’s own information, but also data about its competition, and current market conditions.
Identify the M&A Players
This critically important second stage is when a company begins the process of looking for potential M&A candidates. One crucial factor in building an organization’s list of M&A partners would be to determine how well each of them aligns with the acquiring company’s financial, market share and profitability objectives. When creating such a list, those organizations most likely to be the best fit should be at the top, followed by those whose chances of success are less probable.
Once a list of viable M&A candidates is settled upon, it would then be time to look at both the benefits and liabilities that each organization would bring to the table. If the benefits gained are worthwhile and liabilities minimized or manageable, a candidate company can move forward in the selection process. Should it become clear after careful evaluation that the negatives outweigh the positives of a potential M&A, the organization in question should be struck from the list and no longer be considered a realistic option.
Making a Decision
Once a steadfast due diligence effort has been made to evaluate new market opportunities, identify which viable M&A candidates are currently available, and also determine the risk/reward ratio of each option, it is best to act swiftly and avoid procrastination.
Hesitating to take action could introduce a variety of unknowns not only in the marketplace, but also within the targeted company’s internal circumstances. As they say in business, timing can be everything, so an acquiring organization should put itself in the best position to complete a successful M&A transaction.
Now that the right company has been selected for the M&A transaction, determining the proper amount to pay for it is critical. A comprehensive look at the organization’s cash flow, previous sales and forecasts for future revenue will play a huge role in determining its market value. In addition, a careful evaluation of the company’s debt and other obligations will influence its value as well. It is often extremely beneficial to bring in an outside financial organization to conduct the valuation analysis.
Merger & Acquisition Consultants in Chicago
The process of successfully executing a successful Merger & Acquisition (M&A) can be complicated. The principles at SOGID™ Management Consultants have decades of business, finance and M&A experience, and are available to put their knowledge to work for your organization. In addition, we are happy to collaborate with any M&A Advisor of your choosing.
Please contact us today for more information