By Abby Roberts, Sr. Director, Product Marketing, Corporate Development
The post-COVID recovery is fully underway and sell-side M&A activity is running white-hot. For buyers, plenty of opportunities remain. But in an environment where valuations are hitting unprecedented heights, it’s more important than ever to stay focused and sidestep these five common mistakes.
Buyers commonly mistake speaking to the top layer of seller management as a proxy for cultural assessment. But a more thorough cultural assessment is key to ensuring a fruitful business merger. Employee retention, ways of working, and operational efficiency all hang in the balance.
To build better insights, it’s essential to find creative ways to dig a few layers deeper into the organization and understand how a company really operates day-to-day. Who makes the decisions? Who manages client relationships? Is the organization process-driven? What best practices does the seller have in place? Answering these types of questions will help smooth integration stumbling blocks and ensure that a deal that looks good on paper also works in real life.
Under or over-estimating your synergy targets is a major challenge for most buyers. It's easy to develop synergies on paper through an abstract math exercise, but it's much harder to ensure those synergies get operationalized and determine when they will hit the business budget.
To reach synergy targets, break them up into smaller parts and hold people directly accountable for executing on them within specific timeframes. For example, leverage project managers to ensure short, mid and long-term goals don’t get lost in the day-to-day shuffle. Make targets achievable by breaking them up into concrete deliverables around training, sales incentives, etc.
Not providing a warm welcome to new employees after an acquisition can have expensive and long-lasting consequences when it comes to employee morale, productivity and retention. Even before COVID-19, employee onboarding and retention was often an afterthought. With the pandemic, this issue has been exacerbated by the fact that get-togethers and off-sites, long a mainstay of corporate transitions, are no longer easily doable.
Get creative. Don’t just ramp up employee communication after a purchase. Also consider other ways to make employee onboarding a positive experience through home-delivered welcome kits, virtual get-togethers, and other ways to say, “we’re happy you’re here.”
Successful deal outcomes depend on seller engagement and long-term ownership of the business plan. Too often, however, buyers forget to include the sell-side management team in their Post-Merger-Integration (PMI) planning. As a result, execution gets bungled or not appropriately incentivized.
Include the seller’s management team in PMI planning and focus on issues that could impact their level of commitment. For instance, are seller compensation packages and earn-out structures aligned to the buyer’s growth and cost-saving targets? Does the integration plan enable the management team’s ability to execute on those targets and if not, why not? Having those conversations with the seller up-front will save everyone a world of pain later on.
Process mistakes are easy to make – especially when you’re juggling multiple sellers, stakeholders, and just too much stuff. Going lukewarm on a deal simply because it’s dragged on too long is human nature.
Keep your team on track through regular status checks. Make sure workstreams are clear on what they need to deliver – and when. Lean on project managers and technology to help you with deal oversight. Don’t let inertia kill a good deal.
As M&As soar, sellers have the upper hand—but with the right approach, plenty of great opportunities are available for buyers. To take a deeper dive into how dealmakers are navigating today’s landscape, register to access the on-demand replay of our recent corporate development roundtable. The first in a quarterly series, “Corporate Development Outlook: Buyer’s Circle” provides perspectives from top executives, together with the very latest Datasite Insights Q1 data on deal volumes.