Communications and Relationships – Essential Elements of an M&A Toolkit
Mergers and Acquisitions have occurred since the late 1800‘s. Initially from 1895 to 1905 small firms consolidated to form larger firms which then had dominate market share. These were the “trusts” of the early 1900’s many of which are household names today – DuPont, General Electric and US Steel. Throughout the 1900’s, mergers and acquisitions were the domain of large corporations seeking synergies from operational efficiencies, and economic benefits from economies of scale. The business networks developed by these companies included bankers, private equity firms, lawyers and brokers. These were close relationship, with communications between the “Boards” and the “Street” (interlocking directorships) to identify appropriate targets that fit the criteria established by the acquirer.
Beginning in the 1990’s and continuing today Mergers and Acquisitions have become a part of the corporate strategy for most companies. Buyers today are seeking less in hard assets, while focusing more on patents, technology, market share, geographical diversity in a global market, or firms that complement and strengthen an acquirer’s capacity to serve customers. Additionally, by seeking to acquire smaller firms and start-ups, the buyers are interested in the target’s employees and relationships that could add expertise and capability to the acquirer’s existing organization.
In mid-size firms, today’s acquisition strategy requires that the buyer’s executives establish and nurture personal relationships within the M&A community of bankers, lawyers and brokers. Similar to the large corporations, the smaller acquirers need to have trusted confidants and counselors who can recommend potential targets, as well as provide M&A advice and guidance. For non-public companies, having informal, outside Board Members or an Advisory Council may be a method of fostering open, continuing communications with the trusted advisors. These advisors may provide input on a variety of subjects, as well as establishing a knowledgeable and independent group for the purpose of vetting the references of the potential targets.
Smaller companies pursuing mid-market size deals should not approach the process in a mechanical fashion. Data rooms and software tools should augment, expedite and manage the voluminous amount of data and information that is gathered and analyzed during the due diligence and integration process. But they should not be a substitute for direct, personal communications, and relationship building that is imperative to establishing the rapport essential for developing trust between the parties. Communication is necessary with both insiders and with the outside stakeholders such as customers, vendors, and the media, to properly position the strategic rationale for the acquisition.
Software tools are necessary in assuring that a standardized process is followed, and that there is continuity and consistency across multiple deals. Integration project management systems increase the probability that the synergies, upon which the deal was predicated, are in focus. Also, the reporting capability assures that time lines are maintained and resources are properly allocated. However, there is a need for flexibility and good judgement in decision making along the way, to ensure that all integration options are properly evaluated to maximize the final, fully integrated outcome.