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June 3, 2024

Here at M&A Science, our goal is to bring the best and most effective techniques to M&A practitioners and improve their practice. In light of our 300th podcast episode, we have compiled the top 10 things that make M&A successful, together with Michael Frankel, Founder and Managing Partner of Trajectory Capital. 

“Companies are piles of paper. You negotiate with a human being who has a family, hobbies, biases, and interests that represent a company. Recognizing that everyone involved in the transaction is not an automaton, is step one in every deal process.” - Michael Frankel

Alignment in the shared vision of the end-state

Everyone involved must have a clear understanding of what the business should look like post-close. Lack of agreement from all key stakeholders can create passive resistance and derail the integration process. Getting all relevant leaders on board early is vital to success. 

Also, avoid relying solely on financial models. Financial success depends on thorough planning of product development, target customers, pricing, branding, investment, and sales strategies.

Cultural alignment

Recognizing cultural differences early on is crucial. You need to analyze if you can mitigate the problems and create value. 

Employees are a large asset of most companies, especially in technology companies. If you acquire a business and force a culture on them that they don't like, employees will leave, and you could end up with no business. 

Joint Go-to-market planning pre-LOI

Combining two different products and sales organizations often involves different pricing structures, go-to-market rhythms, sources of lead generation, discounting, proofs of concept, and channel partnerships. Go-to-market is a very complicated area, and it’s important to identify all issues upfront. 

You can't assume that a sales organization can just sell more and more products. There's a capacity limit to how many different things a sales organization can handle, especially if they are different.

Parallel diligence and integration planning

If you don't do this, you're going to have two bad outcomes. The first is poor integration. The integration team will start from zero the day after closing, delaying integration by three months or more, and leading to bad surprises, such as lacking the right resources.

Secondly, Integration planning can influence diligence. Without integration team feedback, diligence might overlook significant issues, like the impact on employee benefits, leading to major cultural problems. 

Reverse diligence

Educating the target company of how they will fit into the parent company post acquisition is crucial to making M&A successful because much of the integration work gets done by the target. You want the target team to have a preview so they can start thinking about how they will integrate.

Also, the seller will be able to detect red flags if there are aspects of your operation that could be damaging to their business. They won't know this unless they get that reverse diligence.

Communication strategy with stakeholders

Good news is a great asset to leverage. There are several groups of people to consider. It's not just about target employees; it's also about your own employees, ecosystem partners, the general market, competitors, and vendors. Messaging is crucial to avoid negative outcomes and to create positive ones. 

Continuous learning and improvement

Always aspire to keep getting better, and use post-mortems and retrospectives in an ongoing and sustainable way. Analyze past deals and learn from them. Also, it’s important to document best practices. While you may have corporate development experts, the majority of people involved in any given transaction are not experts. Having a point of reference for best practices is crucial for success. 

Anticipate functional challenges

Involve legal, tax and HR early in the process so they're not identifying problems at the last minute. Getting a seat at the table early gives them a good strategic position. 

One of the best approaches is to have standardized processes. While a corporate development person might argue that there's no time for early conversations with all specialty areas pre-LOI, setting up standardized processes and communication engines can help. 

Creating a mini data room and sending alerts to key contacts in legal, tax, and HR can flag the start of a deal. This allows them to review material without becoming a big distraction.

Empathetic leadership

Understanding the counterparty is crucial. Before engaging, understand what makes them tick. Often, if you understand the counterparty, you can create value. Everyone involved in a deal has inherent biases, from fear of change to excitement about opportunities, to ego. Understanding these personal aspects can lead to better outcomes and avoid value destruction. 

Proper preparation

Preparing for everything is impossible, but if you do your best and take preparation seriously, you'll accomplish the majority of the value. The key difference is whether you're pretending to prepare or actually preparing. 

Pretending is just checking the box, while actually preparing means making real changes in the organization. As a buyer, you can prepare in advance the things that you would be willing to change to make the integration successful. Planning for the upcoming changes rather than waiting what would happen can make a huge impact in the deal.

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