There are two important stages in the successful merger & acquisition ownership. The first critical stage comes in assessing if the targeted acquisition is a correct fit for the acquiring entity, often a private equity firm. The firm’s intent can be to start with a platform acquisition or an add-on to an existing platform company. Flow Consulting strongly suggests that you start by developing an investment thesis that takes into account your overall company’s acquisition integration strategy:
- Is this a fit for your firm’s investment goals, for example:
- Are you buying this to sell in 3-5 years?
- Are you buying this to hold and build earnings?
- Are you buying this to transform?
- What does this company look like when you sell?
- Is the landscape ripe for consolidations?
- Will the growth come organically with core process improvements – sales, logistics, operations, etc?
Merger & Acquisition First Visit
Now you are in much better position for the First Visit – typically pre LOI (Letter of Intent) where there are often plenty of competitive suitors. We call this the Discovery phase.
- Does this company match your firm’s investment goals and criteria?
- Are there easily identified risks and opportunities that should be explored further if we proceed?
Merger & Acquisition Due Diligence After LOI
And then, if our Merger & Acquisition First Visit indicates a fit for your investment thesis, you move to data based Due Diligence – after Letter of Intent, against potentially one or two competitors, but with access to critical company data:
Flow Consulting has a decided edge here in assisting you, honed over the past 15 years of working with PE firms:
- Understand the health of ALL of the critical business processes
- Identify the key opportunities for improvements that can dramatically impact EBITDA and debt, for example:
- Can core processes be dramatically improved for customer experience?
- Can core processes be dramatically shortened?
- Can inventory be dramatically reduced for debt pay-down?
- Can core process improvement result in zero capital and labor costs even while company is growing top line?
- Identify risk areas that need to addressed immediately upon ownership, for example:
- Are there safety factors that could drive up insurance costs?
- Can this leadership team meet the investment thesis?
- Are there large outdated inventory levels?
- Are there key people that can’t be replaced – not process driven, but individual effort driven?
Flow Consulting delivers a consistent Merger & Acquisition Due Diligence reports along the following lines – every time:
- Critical Processes Analysis
- Rated by process health and maturity
- Weaknesses identified
- Corrective Actions and Priorities suggestions
- Opportunities that can be leveraged
- Risks that need to be addressed
The second critical stage of Merger & Acquisition is the successful integration of a company add-on to an existing platform, as these types of acquisitions represent the majority of today’s private equity acquisitions.
You may have found that most Merger & Acquisition add-on acquisitions do not meet your investment thesis expectations. A leading reason for this is that the private equity firm and the portfolio company do not set aside adequate funds to do a proper integration:
- If a proper budget can be agreed upon just prior to the acquisition, then the platform company isn’t trying to perform the acquisition on a ‘shoestring’ budget
- All integrations require at least a dedicated leader, and, in some cases, a dedicated team and external resources
Another key reason for missing expectation is the project plan to perform the integration is not completed well before the actual acquisition, with the following aspects of any acquisition plan set up ahead of time:
- Who will be the leader
- When must the successful integration be complete
- What critical milestones must be met to meet the completion date
- What team members are required
- What external resources will be required and what is the anticipated costs of those resources
- Have we considered all of the processes that must be addressed for a proper integration
- Business Systems (ERP, CRM, etc. …)
- Customer Service
- Human Resources
- Information Technology
- Business Processes – Customer Ordering, Logistics, etc.
- Sales Operations
And, most importantly, the private equity firm should hold weekly reviews to monitor the project plan until the integration is successfully completed.
Do You Need Help With Merger & Acquisition?
Why not get in touch and see how Flow Consulting can help you with Merger & Acquisition improvements.