The M&A Planning Phase is critical to the success of any M&A strategy. Read as we describe what makes for a successful Planning Phase.
Throughout the M&A lifecycle, companies have many opportunities to add value to their side of the deal. Transaction leaders need to understand how to govern the time and resources of every stage. Each stage is a balancing act, whereby too many resources spent can result in a loss of value while underprioritizing can leave money on the table. Finding the right balance is key to every stage in the M&A lifecycle and will help the company develop the necessary framework and confidence to undertake future deals.
We view the M&A lifecycle in three major phases. The first phase, planning, is the time your company will spend preparing for the following phases. The evaluation phase begins after you have identified your target and ends at the closing of the transaction. The execution phase entails all of the integration of assets and operations.
In this article, we will be covering the planning phase. Next, we will discuss opportunities within the Evaluation phase.
By the end of the planning phase, you should have a detailed understanding of each decision you are planning to make through the end of integration. Of course, there are unforeseen considerations that will arise throughout the deal process. Still, your ability to predict various outcomes will be a determining factor in the deal's success.
The M&A strategy you are creating should be a component of a broader organizational strategy to add value to your company. We are not buying companies for the sake of it. Instead, there are ends we are after, and M&A is a means to accomplish them. Your corporate development strategy, in addition to M&A, should include divestitures. Creating your M&A strategy is arguably the most critical step in the deal process until post-acquisition. Getting your ducks in a row here will save your organization the time and resources of future course correction.
It is essential to avoid falling too deeply in love with your target company. Your strongest negotiating tool at every point of the deal is your ability to walk away, and you need to have the strength to do so if that's where the data is pointing you. The main objective of the due diligence process is to find those areas of concern and, if necessary, walk away from the deal. Never assume you will solve all of the target's red flags; stay true to your criteria and strategy and know when to walk away. Once you have created your overall strategy, it's time to identify specific details about your targets that align with your strategic objectives. If you already have the target company in mind before setting these criteria, you should pursue that target with caution. You will want to complete the criteria setting process entirely to stay as objective as possible during your target identification. After setting the criteria, you will begin looking for a target through various ways, some of which we'll cover below.
Look in multiple areas:
After completing the planning phase, the M&A lifecycle progress into the Evaluation Phase, where the buyer works to become familiar with every detail about the seller.
Finally, before you reach out to your target, you will want to have a valuation estimate together based on a multiple of earnings. From a pricing standpoint, typically, sellers want to see a multiple on earnings, but that can change based on specific industries and circumstances. If you have not engaged an advisor who has been here before, now is the time to do so. Future litigation concerns arise the moment you attempt to contact your target, making it critical you have professionals working beside you who do this for a living. For more information on why we believe we're your best option for this type of advisory work, feel free to book a time now for a free consultation.
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