IM2’s Six Golden Rules of Mergers & Acquisitions

WORDS OF WISDOM

"There are two kinds of people- those who do the work and those who take the credit. Try to be in the first group; there is less competition there."

- Indira Gandhi

IM2's Six Golden Rules of Mergers & Acquisitions

By Brian C. Winters, Principal, IM2 Consulting

IM2 Consulting has guided many large and small organizations through the transaction lifecycle and has found that a fine line separates success and failure. Here we highlight some of the factors in that separation:

Rule 1: No matter the deal size, the same bases need to be rounded for every transaction

There is a common myth that the size of a transaction predicates the level of risk, integration workload, and synergy benefits for an organization. Yet, regardless of a transactions’ size, type, assets under management, or complexity, the same pragmatic approach should be applied on all deals to ensure that the organization’s integration objectives and most importantly, value targets, are achieved. There is a misconception that smaller transactions require “less” work to execute. We have found that it is the smaller deals that pose the greatest risks and disproportionate workload when compared to deal value and synergy targets.

Rule 2: Transaction Structure and Integration Approach defines the value, risks and staff workload not transaction value

Deal structure and overall integration strategy has a closer correlation to level of work and synergy obtainment – not the transaction dollar value or asset level. A transaction structure and integration approach defined and designed by the deal team, absent a full understanding of the operational, technology, and staff implications leads to increased inherent work while simultaneously raising execution risk. Non-operational groups should not be permitted to define the integration approach in isolation. Solicitation from all departments will better position the organization for a quick and efficient integration. And, all else being equal, pick the transaction structure and approach that is most efficient for your organization.

Rule 3: Speed is your friend – The faster a deal can be done, the more value will be achieved

Once the decision to move forward with a transaction is made, a clearly defined approach and speed of negotiations are the most important factors in ensuring a successful close. A prolonged bidding/negotiation process risks the anticipated value of the transaction. In general, there is an inverse relationship between duration of the bidding and negotiations process and generation of a maximum bid as well as ideal deal terms. Obtaining early ‘sign-off’ on the bidding approach and operating assumptions up-front will help to avoid a protracted or indeterminate process. The longer the bidding process continues the higher the risk of resource flight, press leaks, and mixed messages to the counterparty. The faster a deal is consummated the greater the likelihood of achieving planned objectives.

Rule 4: Understanding the true financial and operational impacts predicates the transition

Understanding the ‘true’ financial and operational impact of a transaction will often drive how the deal is structured and will define the blueprint for the overall transition. Organizations need to identify the desired accounting methods and deal treatment prior to the transaction (e.g. goodwill, etc…) and vet all expected financial impacts and benefits including synergies across the business. Another key consideration is to focus on activity to ensure assets or resources are not shed unnecessarily during the transaction or transition period.

Rule 5: Establishing “Rules of the Road” upfront sets overall expectations and pace of the program

Establish rules of the road early in the pre-deal phase for data exchange, communications protocol, and project organization. In the integration stage of a transaction, rules of the road help set the overall pace of the program, defines roles and responsibilities, and focuses the organization on the key objectives.

Rule 6: Expect the Unexpected

Expect the unexpected from the counterparty in the bidding phase, document all communications and insist on periodic sign-off processes on approach and deliverables. And as the transaction progresses, expect the integration risks and challenges to compound. There are always unexpected surprises in negotiating and implementing transactions. The key is to plan for these contingencies and to have a program structure that can minimize and overcome any unexpected challenges in the transaction lifecycle.



WORDS OF WISDOM "There are two kinds of people- those who do the work and those who take the credit. Try to be in the first group; there is less competition there." - Indira Gandhi	IM2's Six Golden Rules of Mergers & Acquisitions By Brian C. Winters, Principal, IM2 Consulting IM2 Consulting has guided many large and small organizations through the transaction lifecycle and has found that a fine line separates success and failure. Here we highlight some of the factors in that separation: Rule 1: No matter the deal size, the same bases need to be rounded for every transaction There is a common myth that the size of a transaction predicates the level of risk, integration workload, and synergy benefits for an organization. Yet, regardless of a transactions’ size, type, assets under management, or complexity, the same pragmatic approach should be applied on all deals to ensure that the organization’s integration objectives and most importantly, value targets, are achieved. There is a misconception that smaller transactions require “less” work to execute. We have found that it is the smaller deals that pose the greatest risks and disproportionate workload when compared to deal value and synergy targets. Rule 2: Transaction Structure and Integration Approach defines the value, risks and staff workload not transaction value Deal structure and overall integration strategy has a closer correlation to level of work and synergy obtainment – not the transaction dollar value or asset level. A transaction structure and integration approach defined and designed by the deal team, absent a full understanding of the operational, technology, and staff implications leads to increased inherent work while simultaneously raising execution risk. Non-operational groups should not be permitted to define the integration approach in isolation. Solicitation from all departments will better position the organization for a quick and efficient integration. And, all else being equal, pick the transaction structure and approach that is most efficient for your organization. Rule 3: Speed is your friend – The faster a deal can be done, the more value will be achieved Once the decision to move forward with a transaction is made, a clearly defined approach and speed of negotiations are the most important factors in ensuring a successful close. A prolonged bidding/negotiation process risks the anticipated value of the transaction. In general, there is an inverse relationship between duration of the bidding and negotiations process and generation of a maximum bid as well as ideal deal terms. Obtaining early ‘sign-off’ on the bidding approach and operating assumptions up-front will help to avoid a protracted or indeterminate process. The longer the bidding process continues the higher the risk of resource flight, press leaks, and mixed messages to the counterparty. The faster a deal is consummated the greater the likelihood of achieving planned objectives. Rule 4: Understanding the true financial and operational impacts predicates the transition Understanding the ‘true’ financial and operational impact of a transaction will often drive how the deal is structured and will define the blueprint for the overall transition. Organizations need to identify the desired accounting methods and deal treatment prior to the transaction (e.g. goodwill, etc…) and vet all expected financial impacts and benefits including synergies across the business. Another key consideration is to focus on activity to ensure assets or resources are not shed unnecessarily during the transaction or transition period. Rule 5: Establishing “Rules of the Road” upfront sets overall expectations and pace of the program Establish rules of the road early in the pre-deal phase for data exchange, communications protocol, and project organization. In the integration stage of a transaction, rules of the road help set the overall pace of the program, defines roles and responsibilities, and focuses the organization on the key objectives. Rule 6: Expect the Unexpected Expect the unexpected from the counterparty in the bidding phase, document all communications and insist on periodic sign-off processes on approach and deliverables. And as the transaction progresses, expect the integration risks and challenges to compound. There are always unexpected surprises in negotiating and implementing transactions. The key is to plan for these contingencies and to have a program structure that can minimize and overcome any unexpected challenges in the transaction lifecycle.