Effective M&A Process


Emptech's founder, Jeff Aleixo


Jeffrey Aleixo

effective m&a process tax compliance

Mergers and acquisitions (M&A) is the combination of two businesses into a single entity. The main benefit of an M&A process is synergy since companies take advantage of a growth opportunity by joining forces with another one. Other benefits of mergers and acquisitions include:

  • Cost-reduction,
  • Market share growth,
  • Improvement of distribution,
  • Better use of financial resources, and
  • Knowledge acquisition.

On the other hand, carrying out an M&A process entails risks such as:

  • High legal and processing costs,
  • Loss of other business opportunities,
  • Negative reactions from clients and public opinion,
  • Loss of valuable employees, and
  • Stock value decrease.

What Are Mergers and Acquisitions

Even though the final result of an effective M&A process is always the creation of a single company, merger and acquisition processes are not the same and have their own set of characteristics.

Mergers usually take place between two businesses that are equals in size, customer base, operations coverage, product lines, or industry. Mergers may grow a company’s market share, expand its products or services, or gain valuable intellectual property. Since it combines the best aspects of the participating companies, a merger creates added value for the entity’s shareholders.

Acquisitions are the easiest way for a company to grow its knowledge, operation scope, product lines, or market share. Although they are beneficial for business growth, acquisitions entail some risks including loss of key employees, drops in stock value, and high costs. Despite this, acquisitions are becoming more and more frequent as they speed up the expansion of a company.

Outsource M&A and experience the advantages of automation in the world of mergers and acquisitions where deal value can be significantly improved by speedy and efficient consolidation of systems and processes.

Key Steps of an M&A Process

M&A is a process that requires the participation of a buyer company, a seller or target business, and service providers such as investment bankers, business lawyers, organizational consultants, and M&A advisors. Although every M&A process has its own particularities, most of them go through the following steps:

  1. Definition of acquisition strategy,
  2. Creation of M&A search criteria,
  3. Deal sourcing,
  4. Merger process planning,
  5. Target valuation,
  6. Deal negotiation,
  7. Due diligence,
  8. The definitive merger agreement,
  9. Financing strategy,
  10. Closing and post-merger integration.

Elements of an Effective M&A Process

There is no doubt that M&A leads to boosting performance and improved long-term growth. However, with M&A transactions, whether large or small, success often depends on balancing different elements and business interests. For an M&A process to be effective, executives should be clear about their objectives, goals, and milestones. Also, they need to make sure that transactions include the following elements to get more value out of M&A.

Increased Strategic and Financial Value

A successful M&A process is one that involves both strategic and financial value. The acquisition should offer achievable revenue synergies that will significantly increase sales to existing customers and improve the overall customer base. Financially, once all of the cost synergies are considered, an M&A process should include gradual growth of earnings and achieve an acceptable return on investment.

Expert Involvement 

Once executives make sure that an M&A process makes good financial and strategic sense, involving the right experts is critical for achieving the anticipated increase in value. Making the right decisions during the due diligence process ensures that the objectives of the transaction can be reasonably obtained and the risks associated with the deal are considered in a detailed way.

Use this comprehensive guide to find out what steps to take in order to achieve a successful M&A and develop new concepts and strategies.

Effective Due Diligence Processes 

The third element of a successful M&A process is perhaps the most crucial and the most difficult to manage. Due diligence in M&A is an in-depth study of the history, mission, values, culture, and financial reports of an organization and it is necessary to obtain an adequate valuation. A poor valuation can result in an inflated price, which will make the merger or acquisition look like a failure, no matter how smoothly the integration proceeds. Therefore, to achieve an effective M&A process, the executive team needs to ensure that each task on the due diligence list is completed meticulously and examined thoroughly.

Successful Post-Merger Integration 

Realizing the maximum potential of a transaction sets complicated and unique challenges because no two deals are alike. Clearly defining and managing post-merger integration activities is one of the most important elements of a successful M&A process. A rigorous post-integration approach can drive the ultimate success of the deal while minimizing risk and avoiding missed opportunities and unintended consequences. For example, if the integration commands too much focus or takes too long to complete, leadership, as well as employees, will lose focus on the primary goal of operating the business effectively and profitably. Hence, it is important to start early and stay focused on the strategic objectives of the deal, synergies, value drivers, and the integration plan as a whole. 

The Key to a Successful M&A

M&A deals usually fail because expectations for realizing short-term gains when merging two companies are often unrealistic. This occurs even when companies complement each other well and should easily integrate.

Each M&A process has its own dynamics and each deal has its own unique story, but there are often common underlying issues and challenges. If potential synergies exist for combining both organizations, it is up to the combined management team to enable them. To achieve this, they need to integrate different elements of an effective transaction and make sure it is realistic, transparent, and planned for both the mid and long term. Furthermore, M&A deals can be accelerated through automation. This can transform traditionally manual processes and increase the level of efficiency across different components of an M&A process, such as data sourcing and extraction, data transformation, and data entry. Ultimately, automation can enable more value to be captured through M&A transactions.

Automate M&A to seamlessly combine information systems and processes and create the necessary conditions for fully reachable and achievable synergies.
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