A First Step in M&A's: Know Thyself!
by Jack Prouty, President of M&A Leadership Council
In both The Art of M&A Due Diligence and The Art of M&A Integration, we tell our attendees, “If you are going to take on acquisitions—especially if you are a serial acquirer—you must first be internally ready.” Since many of them are strategic buyers, we ask them to consider how an acquisition complements their existing business and supports their growth strategy. We recommend a number of preparations your business needs for M&A success, and these need to be done beforehand, not when you are face-to-face with the diligence effort. Though often overlooked, an important step is to really know your corporate self before you start thinking about acquisitions.
First, you need to better understand your company’s internal capabilities and competencies, how you operate, and what makes you “you” (what I call “the business of the business”). If you are like me, you probably think you already know these things, but I ask you to answer the questions below. Conduct a self-assessment of how effectively you answered each question, and then identify any gaps. Once you fill those in, you will be better positioned to perform diligence in the context of the strategic business fit and true value.
- Have you conducted an objective, independent assessment of these aspects of your core business: overall operating strengths and weaknesses; business capabilities; infrastructure and IT maturity; customer value proposition; staff competencies; etc.? (Note: For those who have attended our integration program, refer to the information we provide on business model).
- Referring to your answer to the above question, have you identified the gap between where you are today and what is needed to achieve your growth strategy? (Note: Again, in our training programs, we discuss the importance of business fit and strategic rationale as you look at different types of acquisitions and the potential value to the business combination).
- Have you created process maps of core business functions, focusing on how the activity is really performed today (not what you think it is or what the prior written manuals say)? This includes how the function is structured and organized; skill sets, titles and roles; systems and processes that support the function; etc. The point is that you are not acquiring a company that will continue to operate “as is,” but in some way may be integrated into your business. So functionally, what are the similarities and differences? Remember that the devil is always in the details!
- Have you done a cultural assessment of your organization? Cultural alignment is a key determinant for business fit, integration approach and timing; and it is an area of risk to mitigate. Unfortunately, you cannot do a full cultural assessment of a target until after Close; but if you first clearly understand your culture, then during diligence you can conduct cultural observations and identify “flash points” that may significantly impact the value of the deal.
- Do you have a list of current corporate initiatives underway: strategic, IT, business re-engineering/operational improvement, etc.? What is the business reason, cost and timeframe for completion? With any acquisition, these need to be reviewed and action determined. What will change as a result of this proposed acquisition? What initiatives need to be killed, delayed, accelerated or maintained?
Too often, companies conduct the assessment of their target during due diligence as though it were a stand-alone business, rather than becoming combined in some way with their existing business. But you will not have time to address these concerns while you are assessing the target (or multiple targets!) in short, time-intensive windows. Take these steps in advance to truly understand your company so you will be ready for your due diligence effort.