If you’re a business owner looking to start a merger and acquisition (M&A) deal, chances are that you have a lot on your mind. Is a merger the best move for your business? Will a merger help your company succeed? How should you pick an M&A partner?
This article explores three key issues to consider before merging companies:
- What success will look like
- Whether both companies have compatible cultures
- Whether both companies have aligned timelines and expectations for the merger.
Let’s take a look at each question in detail.
1. What Will Success Look Like for Both Companies?
At the most fundamental level, an M&A deal is successful when it helps both partner companies achieve their combined strategic goals. However, there are countless ways to measure the progress and success of a merger, such as:
- Share price
- Profit margin
- Debt-to-income ratio
- Return on assets and other investments
The important thing is to make sure that both your company and your M&A partner have the same reasons— or at least complementary reasons — for merging. Only then can you both agree on metrics for success. For example, if your company is focused on reducing operating costs to maximize profit margins, your goals may not be compatible with a potential M&A partner aiming to expand staff in order to maximize gross revenue.
Always remember that a merger isn’t a strategy, but rather a tactic you can use to implement a strategy for business success. Whether that strategy is to quickly grow your customer base, reduce operating costs, or gain access to certain technologies or intellectual property (IP), you should be able to clearly see how a merger will fulfill those strategic goals.
How to Manage Success During a Merger
If you want to maximize the chances of a successful merger, then it’s important that both parties can agree on the same path toward success. Here are some key points to remember:
- Before starting merger negotiations, understand why your own business wants to use an M&A deal to become more successful. Are you hoping to reduce operating costs by scaling up? Do you want access to more favorable financing to aggressively expand your market?
- Approach your potential M&A partners from the perspective of your own company’s goals. If a merger with a particular company won’t help you achieve your company goals, then it’s time to keep looking.
- Keep in mind that mergers aren’t always in both parties’ interest. Just because a merger with your company can help a partner achieve their strategic goals doesn’t mean that they can help your company achieve its own definition of success. Don’t feel pressured to merge if the deal seems one-sided, and remember that the most successful M&A deals are about mutual success.
2. Is There a Culture Match?
While a merger needs to make financial sense for both companies, business owners can never overestimate the influence of company culture on M&A success. A merger deal that looks perfect on paper can easily fall apart simply because the two companies’ cultures aren’t compatible.
Keep in mind that compatible culture doesn’t mean identical culture. For example, a company with strong operational discipline can be a great M&A partner with a company that wants to improve its discipline. On the other hand, two companies with different, yet equally successful organizational models would make poor M&A partners if both sides are convinced that their model is the better one.
How to Manage Company Culture During a Merger
There’s no right way to blend different cultures and organizational models during an M&A deal, but here are some general guidelines to follow:
- Address cultural differences from the beginning. Don’t assume that the other company will automatically adopt everything about your company’s work culture.
- Be realistic about which aspects of your company’s culture can change and which aspects are vital to business success. If the other M&A isn’t willing to accept your non-negotiable aspects of company culture moving forward, then it’s better to walk away now and avoid disaster later.
- Think with your M&A partner about what the new combined culture will look like. How will the blended company culture boost the strengths of the partner companies? How will it improve weaknesses?
3. Are the Timeline and Expectations Realistic?
Even the quickest and smoothest M&A deals can take months to plan and execute. As a business owner, both you and your merger partner should recognize and work with the realities of the merging process. Meetings, communications, due diligence, contract negotiations, and financing all take time.
Another key consideration is setting realistic goals and expectations about profitability. After many mergers, it’s common to see a short-term drop in profitability before seeing the benefits of the merger take effect.
The important thing is to keep the big picture in mind — a well-planned and well-executed merger will always be worth the wait.
How to Manage Timelines and Expectations During a Merger
Before starting the due diligence phase and other serious steps, both company management teams should agree on a timeline for the merger process. Treat this like any other large-scale project and incorporate key project management scheduling concepts such as:
- General planning: Is this the right time of year to start the merger? How will sales and customer experiences be affected by the merger process? How will holidays and vacation schedules affect the timeline?
- Contingency planning: Is there enough built-in time to account for minor delays and setbacks?
- Bottleneck analysis: Which critical events depend on one person or group? What will the merger team do when there’s a delay?
- Profitability and expectations analysis: Will the merger be immediately profitable? If not, how long is the expected return on investment (ROI) for the merger?
When it comes to any M&A, proper planning ahead of time will not only maximize the chances of staying on schedule, but it will also help each company understand and agree on the merger’s priorities and expected outcomes.
A Well-Planned Merger is Key to Success
Merging with another company is a big decision for your business. That’s why it’s so important to consider key questions before moving forward. At Confie, we put people and culture first when working with companies interested in joining our family. Get in touch with us today to learn more or give us a call at (714) 252-2500.