Business Strategy

Finding the Right Fit for a Merger and Acquisition

    • 5 September 2018– Matt Sheets is photographed at FNB College Park in Kansas City for FNB.
    • Matt Sheets

      Market President
      Feb 04 2019

Finding the Right Fit for a Merger and Acquisition

Mergers and acquisitions (M&A) have consistently been used as a potential growth strategy but they seem to be booming lately. In fact, global M&A activity had its strongest start ever in the first quarter of 2018, totaling $2.1 trillion in value.

So what is driving this growth? One key factor is the strong economy. Businesses may have more capital available, making now a good time to pursue a M&A. Secondly, many baby-boomer business owners nearing retirement are looking to transition their businesses it may be the best exit strategy.

If you’re deciding if a M&A is right for your company, it’s important to first look at your business strategy as a whole and evaluate what your end goals are, then consider if a deal will help you meet your goals. There are many factors to consider to make a M&A successful – far too many to list in a single blog post. However, understanding these five key aspects of M&As will get you started and help you have a successful deal.

1. Preparation
If a M&A is part of your strategic plan, I first recommend preparing yourself for what a M&A might entail. If you’re selling, think through what types of offers you’d be willing to accept and what you’d want out of a deal. Consider if you want your company to stay in your community, if you want to consider a management buyout and what your minimum selling price would be. As part of preparing yourself, you’ll need to also think about your exit strategy. Assess how you want to hand over control of your business and how comfortable you will be with the transition.

Secondly, ask yourself if your finances are ready for a sale and think about how your finances will look in the marketplace. Take a hard look at your balance sheet and your company’s historical financial performance and do what you can to make your company attractive to potential buyers. Once you feel your business is ready, obtain an up-to-date business valuation to analyze your company’s market value.

Additionally, whether you’re selling or acquiring it’s important to have a transition plan and timeline in place. In this plan, prepare how you’ll be communicating with employees, customers, partners and the public. You should also think about who will be impacted by each milestone in your timeline and plan accordingly.

2. Culture
You’ll hear the word “culture” often when talking M&As but it’s for good reason. According to SHRM, over 30 percent of mergers fail because of culture incompatibility. Whether or not a company is a good cultural fit may make or break a M&A. One well-known M&A failure due to culture was the AOL and Time Warner deal in 2000. The two organizations couldn’t align culturally and the merger ended up failing. Before a M&A, evaluate the other company’s culture and see how it compares to yours. If it’s not a match, can these differences be changed or are they minor differences? Your employees are already likely nervous about a M&A but culture alignment can make things smoother on both sides.

3. Operational Considerations
When it comes to a M&A, you will want to evaluate every detail – including all operational processes to see how compatible the two organizations are. Evaluate how processes and platforms will be integrated or which programs overlap. This could be a good time to do some housekeeping and get rid of unnecessary tools or processes or fine-tune things to make them more efficient.

4. Assess Talent
Before a deal is made, it’s important to assess the talent in both organizations and how teams will come together. You will likely receive many questions from employees on how the deal will impact staffing. Consider what your org chart will look like after the M&A is complete. Will hierarchy change? Will departments need to be reorganized? Work with your Human Resources team to conduct a skills inventory of your current staff and look at your management team’s leadership styles.

5. Branding
When a M&A takes place, two companies not only combine their resources, staffing and products and services – their brand reputations essentially become one. Think about the other company’s brand reputation in the marketplace. Will their reputation hurt your company’s image?  Consider what customers will think of a M&A. Will they still trust doing business with your organization? It’s key to integrate the two organizations with the customer in mind and communicate the value of the deal to the customer. An example of a M&A that failed because of bad brand compatibility was Sprint and Nextel in 2005. Nextel’s brand image was more business-based and highlighted its walkie-talkie technology. On the other hand, Sprint’s brand was aimed at consumers and emphasized data communications. In the end, the merger was unsuccessful and Sprint shut down Nextel’s networks in 2013.

A successful M&A is no easy task and if it’s part of your business strategy, it may take some time to find the right fit for your company. If you’re considering a M&A for your organization, I encourage you to speak to a commercial banker at First National Bank. We have experts on our team who can talk through how to best prepare your organization for the transaction.

About the Author

Matt joined First National Bank in 2012, bringing 15 years of commercial banking experience with him. He earned his B.S. in Pre-Law/Economics from Michigan State University, and holds a J.D. and M.B.A. from Case Western Reserve University.

Matt is directly involved with activities centered around Kansas City’s economic growth and high-quality education. He is a board member of the Blue Valley Education Foundation and Highlands of Leawood HOA. Matt has been a Mentor in the Blue Valley CAPS Program Global Business since 2014. He is active in the Kansas City ACG (Alliance for Corporate Growth), and an annual Sponsor since 2012 of the CCIM Kansas City Chapter. In his spare time, Matt enjoys spending time with his family, traveling with them to various U.S. destinations and engaging in outdoor activities.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.