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February 28, 2024

Validating the Acquisition Plan

When executing M&A, having a structured approach to validating the acquisition plan is crucial. The worst thing any acquirer can do is to buy a business that doesn’t bring value to the parent company. Adam Harris, CEO of Cloudbeds, shared his insights on the M&A Science Podcast, outlining a meticulous 6-step process his company uses. Here’s a breakdown of these steps to help professionals streamline their M&A strategy.

“Cultural fit is crucial in M&A. During product demos and discussions, we pay close attention to team dynamics and leadership styles.” - Adam Harris

Surveying customers

Conduct surveys on the existing customers with the goal of understanding their perspective regarding the product. Whether it’s webinars or trade shows, keep repeating surveys employing different methods. Also, getting real-time feedback is crucial, so seize the opportunity to learn from them face-to-face when possible. 

This process is about having continuous conversations to identify clear trends. If responses are the same, it indicates a strong trend. If answers vary, then there is a clear need to delve deeper to understand the real picture.

Industry trend analysis

Industry trend analysis aims to revalidate the customer insights with third-party perspectives. The goal is to ensure that the customer feedback isn't biased and represents a broader view. During industry surveys, identify the key sources where customers gather information. These include conferences, niche media outlets, reputation or review sites, and partners.

It's also important to gather insights from outside the customer base, so engage third party consultants  to conduct broader surveys. Gather as much data as possible. It’s also good to  purchase data from niche consulting practices to confirm the findings.

Partner vs. build analysis

After validating the demand, it’s time to run a dual-track analysis. Evaluate the product cycle and capabilities of existing partners, while assessing the in-house product team's capabilities and the feasibility of developing such technology or product. If the analysis suggests that building the solution isn't viable, it’s time to consider buying. Calculate the costs, including engineering, project management, UI design, and timeline, and factor these into the deal price.

However, if the price analysis reveals only a small gap between building and buying, it could lead to further indecision. There must be a clear winner to move forward, as unanimous alignment within our team is crucial. To combat internal biases, bring in external expertise.

Formulating the strategic rationale

The next step is to explore potential targets or partners and stress test the strategy with a proof of concept. This involves selecting a sample of customers to try the new product or service to gauge its viability. The success criteria are set based on previous research and analysis.

Product managers must also conduct field surveys and interact with competitors and partners, understanding the market as thoroughly as CorpDev does. Both teams must work together and come up with a logical reason as to why the acquisition plan makes sense. 

In-depth company analysis and product demos

This step involves a deeper analysis of potential targets, focusing on the company's talent, culture, and capability. Product demos play a crucial role, as they reveal not only the product's potential but also the team's dynamics, expertise, and cultural fit.

Drafting a detailed memo

The goal is to be completely transparent to both parties. When a founding team openly discusses their fears, risks, and how these relate to the synergy between the two companies, it shapes the conversation. This often leads to eye-opening moments in the boardroom, revealing concerns they might not have been aware of. It's about fostering an honest conversation, not trapping anyone.

The memo aims to align both parties going forward, focusing on the teams that will work together after the deal. All shareholders must feel confident about the future and understand the strategic rationale. Everything must be outlined in the memo, including the price, terms, and the return on invested capital of the deal.

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