With Traditional M&A Players Still on Sidelines, Small and Mid-sized Businesses Have Unique Opportunity to Make Strategic Acquisitions
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careful deal structuring and meticulous analysis.
The use of seller paper and earnouts are popular tools to structure deals, as both allow for payments to be spread out over a period of time. Earnouts also require certain benchmarks to be reached before any payouts are dispersed, ensuring that the acquired executives stay committed to the future success of the company throughout the transition and into the future.
Companies that avoid rushing into any deal are ultimately rewarded. Comprehensive examinations of financials and practices, as well as structuring the deal to mitigate risk, will in the end support a fully integrated post-merger environment.
Stay true to the vision: Executives need to have a clear understanding of exactly why they are pursuing an acquisition and should be sure that any deal furthers these goals. A full review of corporate cultures, management styles, and business processes of any potential acquisition should be conducted at the outset.
Business leaders must not only prioritize areas for analysis that are strategically important, but also prepare to pass on the deal if its components are not as well aligned as initially thought. While the due diligence process may reveal impressive strengths in unexpected areas, it may also show shortcomings around the original strategic intentions. This thorough analysis should be conducted before a company becomes too embroiled in the deal to walk away.
Ultimately, it is critical that acquirers identify how a target company will improve their position, and even more critical to stay focused on those drivers as the deal comes together. Essentially, exploring a strategic deal requires proof that the motivating reason for a merger will be effective when integrated with the acquirer’s operations.
Though the opportunity for strategic acquirers to enjoy a competitive advantage is real and immediate, it will diminish as the economy continues to improve. A semi-annual survey published by Thomson Reuters in May shows that 85 percent of dealmakers expect M&A activity to pick up in the next six months—up significantly from just 56 percent a year ago. Already, as banks begin to loosen their purse strings, private equity is finding its way back into the foreground, shrinking the window of opportunity for small business-driven acquisitions incrementally each day.
Smart, synergistic mergers can mark a groundbreaking level of performance for small to mid-sized companies that are willing to ask if a well-structured deal might make sense for their business. When the economy completes its recovery, small businesses that make the most out of this opportunity will be better positioned to meet short term goals and come out of this tumultuous economy on top for the long term.