Originally published September 22, 2022 by Forbes Business Council. Written by Marius Silvasan.
As recently as 2021, mergers and acquisitions (M&A) were at an all-time high, with $5.9 trillion worth of announced transactions, according to Bain & Company. Since then, the pace of M&A dealmaking has slowed, largely due to inflation, increasing interest rates and geopolitical conflicts. However, these market conditions might increase the number of companies looking to be acquired, making now an ideal time to look at your own M&A strategy and ready your business for opportunities. Mergers and acquisitions can be a strategic way for businesses to stimulate growth, gain competitive advantages, increase market share and influence supply chains.
Over the course of my career, I’ve led more than two dozen successful acquisitions. These purchases served to accelerate growth, expand into new industries and gain technologies that have propelled our business forward and increased the services we are able to offer our customers. While it’s often said that between 70% and 90% of M&A deals fail, in my experience, there are several keys to increasing your chances for success.
1. Engage in offense.
It cannot be overstated that adequate preparation is your best defense for avoiding deal frenzy and ensuring you make solid analytical decisions. Evaluate your seller by assessing their strengths, weaknesses, opportunities and threats, and learn as much as you can about their reputation and habits to anticipate their moves during negotiation. Additionally, have a sound valuation analysis in place, and know your walk-away price.
2. Leverage technology.
Like most business functions, the pandemic has significantly impacted due diligence. Previously, it often involved considerable travel and in-person execution. At the outset of the pandemic, it transitioned to being fully digital and now has evolved to a hybrid model. Technology can be used to save valuable time and keep the process moving, while data and analytics capabilities are key to improving processes. Technology drives many efficiencies; however, there is no substitute for sitting across the table from your counterpart and building rapport, so don’t let the ease of video breed complacency.
3. Develop your process.
An M&A is significantly more complex than simply aligning on a price, so you must be disciplined in your approach. Develop a process that you follow for each deal. However, you might learn new information during the process, so you also need to maintain the flexibility to adjust your objectives and tactics as the deal evolves.
4. Understand your unique proposition.
Focusing solely on the benefits an acquisition brings to you, the buyer, can often lead to the failure of a deal, so enter negotiations keeping what you uniquely bring to the seller in mind, too. In addition to capital, do you offer strategic direction, organization or process disciplines? You should also consider post-closing consolidation opportunities and challenges and alignment of cultures. If you are in “take mode” rather than “give mode,” it’s easier for the seller to increase the price or terms, especially if there are multiple suitors.
5. Learn to concede.
Concessions are important, and sometimes essential, to keep the process moving and show you are truly interested in working toward a mutually beneficial deal. To have more room for negotiations and concessions, include deal terms that are not related to price. When you make a concession, make sure the other party understands the value. You can also make a contingent concession, so they will need to meet a condition in return.
6. Build trust with transparency.
Secrecy might keep the other party on their toes; however, being open about your interests and motivations—without revealing financial or other sensitive information—can build trust and help create a successful long-term relationship. Transparency can also uncover mutually beneficial trade-offs, thus creating value for everyone.
7. Set your watch. Timing is everything.
Timing is a fine line you’ll need to walk throughout the process. You want the negotiation to proceed step-by-step and give the other party time to reciprocate once you make a move. Otherwise, you might be negotiating against yourself. Deadlines can help the process, but you never want them to come across as ultimatums. Time also helps to ensure both parties agree on mutually beneficial terms; however, too much time can lead to fatigue and negative emotions.
An ambitious and impactful M&A strategy is core to how I’ve built my company; through acquisitions, I’ve combined a mix of independent, strong businesses into one unified company. Despite—or maybe with the assistance of—the current downswing, I see M&As continuing to be an important lever that companies can pull to help grow and achieve beyond their current means, especially in the evolving economic environment.