Pre-Acquisition Playbook 1 of 3: How Financial Leaders Succeed Before an Acquisition
by Lisa Kieres, Director
5 Winning Pre-Acquisition Plays
As we’ve discussed, an acquisition is an unimaginable feat of strength and endurance at every stage – before, during and after – but when executed well with the right team by your side, you can end the game with a win on the board.
As deal advisors, we’ve seen many companies approach acquisitions with an informal ‘ready-fire-aim’ approach. As a result, they get far down the path of pursuing an acquisition without benefiting from important front-end work.
And this is no small matter.
When surveyed regarding their acquisition processes, CEOs revealed that fewer than one in five believed they planned adequately prior to their deals. And this lack of prior planning was the most commonly cited ‘lesson learned’ by this group of leaders.
We aren’t surprised by those results. Successful M&A veterans prepare off the field like champions to win.
Which then begs the question: What are the key winning plays of these leaders?
1. Always Be Looking.
In sales, there is the acronym ABC – ‘Always Be Closing.’ But when it comes to acquisitions, the first step is to always be looking.
Experienced leaders create cultures with growth mindsets at their core. These CEOs and CFOs develop the discipline of initiating crucial conversations with their executives, encouraging each to continually look for expansion opportunities in their vendor, customer, and service professional interactions.
Then, they dedicate time on team meeting agendas to further explore ways to radically expand their businesses.
This advice is pertinent to sellers, too. Sellers need executives who are expansive in their thinking and on the lookout for potential acquirers who are strategically, operationally and culturally compatible – buyers who can help their companies reach the next level.
Their CFOs are always prepared for a letter of intent to come over their transom, putting their ducks in a row long before a sale is imminent.
2. Build The Network You Need For Tomorrow, Today.
Napoleon Hill pioneered ‘Mastermind Alliances,’ relational environments that nurture and encourage growth. The Go-Giver movement today (one of our all-time favorites) takes this practice to another level.
And as we often participate in the ‘kitchen cabinets’ of our clients, we couldn’t agree more.
In the deal sphere, experienced M&A leaders know building and nurturing a network, including industry thought leaders, private equity firms, venture capitalists, banks and consultative partners, creates current benefits. It also lays the groundwork for expansive thinking and supports successful deal-making in the future.
These networks regularly provide acquisition-oriented firms with deal and market intelligence not readily available. They are a place to ‘dry run’ acquisition concepts and help leaders apply acquisition ideas from other industries to their own.
Additionally, it’s beneficial to both buyers and potential sellers to participate in networks together. While you may be the buyer today, you might be on the sales end tomorrow. Building a network with future potential partners on either side provides you an opportunity to explore ideas, synergies, and build the kind of relationships and early-stage due diligence that can make for successful deals in the future.
And as these relationships deepen, they can deliver ready-made partners to advise companies to a successful deal outcome – or can refer them to people who will.
3. Invest In Strategic Sessions & Detailed Acquisition Planning.
Senior teams should always be looking for expansive opportunities. But it’s also important to dedicate time to take those ideas from concept to strategies and actions.
An experienced partner, like CFO Alliance, can facilitate these sessions to thoroughly assess acquisition ideas, introducing market realities and proper opportunity analysis. We are your partner in planning and implementation – from concept to close and on to post-close integration.
This enhances the potential for a successful deal and deal velocity. Additionally, formal planning and high-quality execution have a positive effect on the seller, too. Sellers gauge the probability of close, the quality of the acquirer’s management, and their ultimate post-close opportunity, in part by the vision and preparedness they observe in their interactions with a purchaser.
Investing in this stage pays off and can move you closer to a successful deal.
4. Know Your Market Landscape.
We’ve stressed that it is crucial to accurately assess the financial underpinnings of the deal during the acquisition process.
But fully understanding the marketplace – its dynamics, opportunities and challenges – as you begin your acquisition process is equally important.
This allows you to formulate a more realistic view of each acquisition opportunity. Additionally, it enables you to more accurately assess synergies, costs, and the impact of market factors before embarking on next steps.
Understanding the market landscape also has tremendous benefits to the target company.
Excellent CFOs inside the selling company know that they can drive premium sales multiples by not only being fully prepared for the sale but by positioning their company in terms of its superior competitive position. They fully understand the true risks and opportunities of their business and they position their company accordingly to obtain the best deal pricing.
5. Know Your ‘Why’ & The ‘Why’ Of Potential Targets.
Seasoned M&A leaders ask themselves, ‘What outcome can be achieved from M&A that would not be realized otherwise?’ This is true from both the buyer’s and seller’s perspective.
And while there may be countless reasons to acquire, most purchaser ‘whys’ fall under the umbrella of just a few core motivators; pursuing top-line growth, following customers, leveraging technologies, consolidation, stabilizing financials, expanding a customer base or talent, and defensive positioning.
These motivations will need to be married to that of potential sellers because when each can put themselves in the shoes of the other, strategic options and creative deal-making can emerge.
Establishing the ‘whys’ that surround the potential merging of two companies and developing clear criteria for purchase can hone and accelerate the deal process when you put the acquisition wheels in motion.
An Ounce Of Prevention
Pre-acquisition planning is an often undervalued – yet critical – activity as it serves as the very underpinning of deal success – or failure.
At CFO Alliance, we’ve partnered with clients to amplify and supplement their teams, while maintaining forward momentum for all members of the M&A ecosystem.
We deliver the expertise necessary to get your deal across the goal line. Contact us today to learn how.
In case you missed it, check out Acquisition Playbook 2 of 3: How Financial Leaders Succeed During An Acquisition and Post-Acquisition Playbook 3 of 3: How Financial Leaders Succeed After An Acquisition.