Today, there are countless reasons why companies consider M&A deals to drive their growth or international expansion. However, these deals also carry many associated risks, mostly related to a lack of knowledge and transparency. That's why knowing the key success factors in advance allows us to stay ahead and lowers the deal's level of risk.
Many variables help a corporate transaction succeed. To get there, it's essential to have a well-defined strategy, to clearly identify potential investors, and to be able to reach an agreement that benefits both parties.
Key success factors
Specifically, for any merger or acquisition to succeed, the organization needs to meet the following requirements:
Define a strategy
The company must have a plan and define its vision of itself for the coming years. It's also essential to define the objectives of the transaction, the fundamental assumptions before entering into a negotiation, and the so-called “deal perimeter” — that is, what is negotiable and will be part of the transaction, and the other aspects that fall outside the perimeter for reasons of price or any other kind.
Identify target companies/investors
This will help companies bring their vision to life and pursue an acquisition of, or merger with, a company that fits it. On the sell side, it's key to identify potential investors: the more there are, the more competitive the process will be and the better the terms the seller will obtain, since they'll have better options.
Conduct due diligence
It's important for the company to evaluate the business it wants to acquire in order to arrive at an accurate valuation. Due diligence is a key factor in the process for understanding and analyzing every aspect of the company to be acquired beforehand, so as to avoid unpleasant surprises or contingencies down the road that could hinder the deal.
Negotiate and close the transaction
The main goal of the negotiation is to reach an agreement that benefits both parties. Most M&A deals can drag on for a long time from the start of talks until the transaction is completed. The process typically takes four to six months. The timeline will depend on how urgently the buyer and seller want to complete the transaction, how long it takes to complete due diligence, and whether the selling company is able to run a competitive sale process that generates interest from multiple players.
However, there are several factors to keep in mind to shorten those timelines:
- The seller can gather as much information as possible at the start of the process. This includes the contracts it considers key, corporate records, financial statements, patents, and any other information it considers necessary to make available to the potential buyer (whether in a virtual or physical data room).
In this case, the process is streamlined through advance preparation, so the time spent on due diligence can be reduced.
- With the help of an investment bank or a specialized financial advisor, a tightly controlled auction sale process can be run. That way, potential buyers are forced to make decisions in a shorter time frame and in a competitive environment.
- The seller should appoint a lead negotiator with M&A experience who can make quick decisions on behalf of the company. Processes are usually led by the company's CEO or CFO.
- The CEO and their team must be prepared to explain the added value the selling company will bring to the buyer. The process includes a “management presentation” day where, typically, the entire management team presents its plans area by area and how they complement the potential acquirers.
- The M&A advisor should be asked to identify and advise on how to resolve potential delays caused by regulatory requirements (competition, the CNMV — Spain's securities regulator — etc.) and by contractual approvals and other third-party rights.
The importance of the financial advisor
As we've seen, the M&A advisor plays an important role by providing essential technical support for the company's strategy. Their goal is to advise companies through the decision-making process, after analyzing each of the documents and variables involved in depth.
They also study market opportunities and provide assistance in negotiating mergers and acquisitions.
In short, for an M&A deal to succeed — and by success we mean that it matches our wishes and needs as closely as possible, in a relatively short time — it's essential to have a defined strategy and be clear in advance about all the steps to follow. And, of course, surrounding ourselves with the right people and seeking support from industry professionals will also help ensure the deal's success.
In today's environment, where more and more companies — especially SMEs — are choosing inorganic growth as a way to drive their business and/or expand internationally, agility, transparency, and technology will play a very important role.
At Deale, we streamline and digitize the entire M&A process so that SMEs, investors, and advisors alike can close deals quickly and successfully.
