Acquisition Playbook 2 of 3: How Financial Leaders Succeed During An Acquisition
by Brooke Evans, CEO and Lisa Kieres, Director
So, you’re ready to take the field to pursue an acquisition.
Experienced leaders know this will be one of the most important strategies they can undertake – one that will impact their company’s future, financial success, and stakeholders.
That’s why the best financial leaders we’ve worked with often turn to ‘special teams’ in the form of supplemental support – experts who stay agile in order to anticipate and avoid problems while seizing opportunities to clinch the winning deal. Additionally, they’re able to clarify roles and cast their vision of the future, thereby creating an environment where their people feel secure and focused.
Admittedly, an acquisition is a feat of strength and endurance at every stage – before, during and after – but when executed well, thoughtfully and strategically with the right team by your side, you can end the game with a win on the board.
5 Winning Plays
We have supported our clients extensively during their buy- and sell-side M&A deals, giving us front-row seats to the winning plays made by leaders during the deal processes.
1. Dedicate Time To The Strategic Logic Of The Deal
Acquisitions often fail to meet expectations because they begin with vague strategic visions, rather than well-articulated plans for value creation.
So rather than setting a goal of ‘growth’ or ‘economies of scale,’ for example, leaders who want success spend time specifically identifying what they are looking to achieve and working with their teams to model meaningful and specific proformas for the post-close.
How will the acquisition specifically improve the buyer’s financial performance? Can the acquisition remove excess capacity from our company or industry? Can we accelerate the market access for our products? How will the skills or technologies we acquire help us move faster or cheaper? Does this acquisition give us specific advantages in scalability?
2. Prioritize Purchase Price & Projections
A common saying in real estate investing is, ‘You make money when you buy, not when you sell.’ It’s true when executing an acquisition, too.
So it’s mission-critical to have a realistic view of the financial underpinnings of the deal.
What will we achieve financially? And will this support the price we are paying?
Wishful thinking won’t create accretive financial results – and successful leaders don’t paint the logic of the deal with a broad brush. Instead, they do the strategic and financial modeling work to assess the acquisition and increase the odds of taking home the benefits post-close.
Many companies fail because they make sweeping, ungrounded assumptions about margin savings and overhead reductions.
But experts know the devil is in the details.
Companies who are successful at selling their business for premium multiples approach their valuations with an equal amount of rigor. They start early – far before the sale – and are prepared to justify their valuation because it is grounded in sound and verifiable logic.
Conversely, sellers who approach the market with a ‘fuzzy math fantasy’ about the valuation of their business often end up disappointed with the outcome and their ability to negotiate a sale price that meets their expectations.
Whether buying or selling, the best time to invest in a rigorous process now.
3. Determine Your Financial Capability Early
Successful leaders never underestimate the importance of financial stability and having sufficient liquidity for the deal and beyond.
When one organization purchases another, it can be nearly impossible to secure bank financing for the deal – so being confident about future liquidity is critical.
In addition, one-time acquisition costs can stress the purchaser’s resources.
Success requires sophisticated balance sheet and working capital projections, collaborating with financial partners and creatively designing the capital structure.
For businesses that are working capital intensive, even very large scale organizations, the first 90 days after closing often present a risk of breaking a new debt covenant. So great leaders anticipate this risk and begin modeling working capital requirements using a cash flow forecast before the deal is inked.
4. Invest In A Proper Due Diligence Process
We often see an informal approach to due diligence, with leaders asking just a few of their executives to interview target company personnel and review company products, communications and financials.
But without a thoroughly comprehensive process, they won’t have a complete analysis of the risks associated with the purchase.
Being penny wise and pound foolish with time and resources can result in an acquisition going off the rails post-close.
But an experienced team chosen for its expertise and ability to deal with the inherent information gaps brings sophistication and experience to the process with a complete due diligence checklist, secure virtual data room, and coordination of appropriate executives and experts.
5. Don’t Short Shift Integration
Typically, companies are overly optimistic about the timeframes for capturing synergies, as well as the level of effort and timing required to integrate.
Supporting their teams with integration resources for system conversions and integrations, staffing and location planning adds voracity to the decisions and process and can accelerate the realization of the benefits.
At CFO Alliance, we’ve partnered with clients in order to amplify and complement their teams through $500 million M&A deals to help them achieve premium multiples.
We’re there to help all departments stay focused, and manage the steps required for a successful acquisition. Contact us to deepen your bench and increase your odds of deal success today.
And in case you missed it, check out Post-Acquisition Playbook 3 of 3: What Great Financial Executives Do After An Acquisition.