Corporate Development and M&A Best Practices

While organic growth has slowed, and will no doubt be more difficult than in the past, there is a silver lining: many valuable small businesses with strong customer bases will experience liquidity or cash flow issues and are simply “wrong sized to compete”. 

Given the economic client corporate acquisition of distressed assets is one solution for revenue growth.  Companies that take advantage of today’s economic heartaches (i.e. opportunities) can acquire niche customer bases, obtain “A player” top talent, and grow exponentially even under these exogenous pressures. Moreover, a BCG research study revealed that “Acquisitions completed during recessions are twice as likely as upturn deals to produce long-term returns in excess of 50%, and, on average, create 14.5% more value for acquirer shareholders.”

Approaching the seller and cost-effectively acquiring and integrating in a timely manner is a science. The approach used is critical to the acquisition being additive to a firm’s valuation. What approach to acquisitions should be used? One with a proven methodology and a disciplined and experienced team with a track-record of success. 

Employing best practices, implemented at each step of the acquisition process is critical.  Methodical precision is a lock-step process from aligning the acquisition strategy to corporate objectives and analyzing financing options, to systematically researching all potential target acquisitions, to formally negotiating Letter of Intent (LOI) terms, to conducting both strategic and risk-oriented due diligence, and to negotiating a set of definitive purchase agreements, to integration and change management and beyond. 

Advisors help buyers by conducting this process confidentially, and in a timely manner that produces results. 

Top Ten Corporate Acquisition Best Practices

1. View as a lock-step process; not event-oriented case-by-case basis.
2. Profile all potential acquisitions and handicap their probability of success.
3. Develop detailed, integrated cash flow projections that trigger valuation multiple arbitrage.
4. Comparable market multiples are used to validate the purchase price.
5. Milestones and hurdles are mapped and accounted.
6. Integration methodology allows for rapid onboarding of employees, customers, and integration of processes, tools, and systems.
7. Change management plans including communications, incentives, and scenario planning are completed.
8. The acquisition team is incented to see the deal through integration and success.
9. Compensation for all involved is aligned and realized congruently.
10. A full-time corporate development team of experts is used to insure success.

In summary, corporate acquisitions can be done on a case-by-case basis by inexperienced corporate officers or with the help of experienced M&A specialists with a disciplined acquisition process that know how to achieve results.  Ask yourself,  should you roll the dice by yourself or with the help of proven team? 

What are the most common acquisition mistakes ? Read Ephor’s Corporate Development Best Practices report.

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