Strong M&A transaction management
The vital ingredient for a successful purchase
INSIGHT ARTICLE |
The purchase of a business is a highly complex transaction whose ultimate value is dependent upon a broad range of variables. The most effective approach to achieving maximum value from an M&A transaction is to start with a full lifecycle approach to M&A transaction management.
The goal of M&A transaction management is to understand the value objectives defined in the deal thesis and determine how to capture that value by design in the planning for day one of operations and the full integration of the two organizations. The process is always disruptive, but using a well-developed methodology makes it possible to realize the value, reduce time to integrate and minimize risks. To complete the plan on time, if not ahead of time, your transition team must be armed with a structured governance model that provides guidance for communication, change management, task planning, budgeting, technology integration and optimization, and other key elements required to ensure an effective integration.
Unless your organization has deep experience with such a transition, choosing the right transaction management partner is critical. You’ll need an experienced and trusted M&A transaction advisor with the breadth of expertise to overcome unexpected roadblocks throughout the transition―one that can look past the financials when defining value.
Here are the four key features to look for in a strong M&A transaction advisor:
1. Wide-ranging knowledge and capabilities. The principle objective of most mergers or acquisitions is to achieve revenue synergies and cost savings associated with greater scale. The key to success is having a comprehensive understanding of the nuances of the organization relative to the industry as well as the areas where you can adjust current operating models to take advantage of market forces, leverage the thought power of your human capital and derive greater value from your technology investments, while reducing the costs involved with customer and order acquisition.
Modeling savings through operationally driven synergies is valuable because it allows buyers to establish the right valuations on target companies. It also helps to define the tasks, objectives and targets of the value opportunities—from revenue to cost of goods sold through operating costs—and appropriately align services and solutions to capital allocations. In addition, it’s essential to look at tax credits and incentives, as well as opportunity zones, two large sectors that are often overlooked in the value calculation.
Your M&A transaction advisor should take a flexible, management consulting approach that encompasses wide-ranging business and change-management capabilities to tie everything back to the investment thesis. For example, they should be looking closely at IT systems, applications, advanced technology and infrastructure; head count and workloads in conjunction with such other aspects as quality, safety and customer satisfaction, as well potential opportunities for automation; and third-party spend, which can provide significant opportunities for value creation when two companies merge.
2. A focus on accelerated value creation. Deriving value from an M&A transaction depends not only on synergies but on speed as well—the longer a transaction takes to complete, the more expensive it can become, though the speed of the transaction is also dependent on the transaction type and deal terms. To ensure a smooth and rapid transition, the newly combined company may initially depend on transition service agreements (TSAs) that define specific services that the seller agrees to provide to the buyer at a predetermined price. These services may come at a cost considerably higher than if the combined company either built these functions internally or contracted them from a third party.
While TSAs are an important short-term solution, they can be excessively costly. The best advisors will help you understand the correct strategic approach and priority for which TSAs to exit in which order as well as the right timing. Ultimately, the goal of the transaction is to exit the TSA, put all aspects of the business under the management team and operate the company independently of the seller.
A value-driven M&A transaction advisor has the depth and breadth of experience to optimize portfolio operations across all of the business functions. This process helps effectively manage the transaction from purchase through the exit strategy.
3. A comprehensive and programmatic methodology. In a field as critical as mergers and acquisitions, practice makes perfect: Your M&A transaction advisor should not only have extensive M&A transaction management experience, whether in private equity or public markets, they should also have a carefully developed methodology to deliver measurable enterprise value with a comprehensive approach. This is especially important in today’s complex and unpredictable M&A environment.
The success of your transaction will depend on data-driven insights and outcome-focused solutions that help minimize risk and maximize return on invested capital throughout the transaction life cycle. Rather than rely on standalone spreadsheets and databases to evaluate enterprise systems data, your M&A transaction advisor should leverage intelligent automation to sort through massive data sets. This allows them to identify the data that matters more quickly and accurately, then derive actionable insights that can help ensure the success of your transaction. They should offer a comprehensive, people-focused change-management plan and provide end-to-end visibility into the transition process via dashboards so you’re able to rapidly determine the status of the transaction.
4. Resources to enable and activate value creation throughout the transaction life cycle. Achieving game-changing goals that return the highest value can take a large, diverse team that could span multiple disciplines: not just diligence, but also risk, tax, technology, finance and accounting, among others. Your M&A transaction advisor should be prepared to engage the appropriate resources and ask the right questions across all key departments—finance and accounting, HR, tax and treasury, operations and supply chain and manufacturing—to provide whatever knowledge and resources it takes to bring the transaction to a swift and efficient conclusion.
You should also look for an advisor that has integration planning experience and resources to achieve cost-out and efficiency goals. Perhaps the most time- and cost-intensive integration is that of the IT function, an often-overlooked aspect of merging two enterprises. Without a pre-close understanding of IT capabilities, a 100-day improvement plan may end up taking over a year—or it might fail completely because of the extent of the IT issues that have to be addressed. Moreover, if the right systems aren’t in place, management won’t be able to generate meaningful reporting to make informed business decisions to grow revenue, making an efficient and effective IT improvement plan a critical element of success.
An experienced M&A transaction advisor can provide insight into what would be possible with the existing technology, quantify the pro forma run rate costs, estimate the one-time technology expenditures associated with the integration and provide insight into which ERP, CRM or core operating platform approach would make the most sense given the investment thesis.
Successful M&A transaction management takes a holistic approach to M&A activity, integrating people, processes and technology to maximize synergies and squeeze the greatest possible value from a transaction. RSM’s transaction advisory service brings a depth and breadth of experience that is unique in the industry. We guide clients through the entire lifecycle of a transaction, from early-stage evaluation through post-acquisition process optimization, to successfully fulfill our clients’ goals.
To learn more about RSM’s approach to merger integration, read our white paper.