Making the Big Move: Successful Mergers and Acquisitions Transactions Take Multi-Faceted Approach

Successfully merging two companies is a labor-intensive job that requires careful planning and good communication.

Companies merge for many reasons, but most fall into four main categories — growth, synergy, diversification, and reaction, according to Goosmann Law Attorney Aaron Adams.

Adams broke down each category:

Growth — increasing or protecting market share, accessing new markets, acquiring new products or services, gaining access to resources and capabilities, and achieving economies of scale.

Synergy — when the acquiring firm believes that by combining the aggregate parts of merging firms the resulting business will generate benefits exceeding the sum of the separate parts of each company.

Diversification — acquiring a diverse business outright may be a less risky way
for an acquiring firm to diversify its stock portfolio than investing directly in other, often unrelated, businesses.

Reaction — when a transaction by one firm in a market triggers an M&A response from other firms that perceive the initial M&A transaction as a ‘strategic indicator’ of an emerging trend, or threat, to which they should respond.

The Big Decision

Many Nebraska organizations are seeing the appeal of an M&A. According to Bridgepoint Investment Banking’s Midwest M&A Quarterly Report, M&A activity involving Nebraska-based buyers and/or targets reached the highest volume since 2016 in the third quarter of this year at 32 transactions.

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Business owners looking into a M&A may ask themselves if they are looking for liquidity or to sell.

“There are many private credit and minority equity options available that allow a business owner to transition their company to an existing management team or maintain control of their business while ‘taking some chips off the table,’” said Gary Grote, managing director at Bridgepoint Investment Banking.

A primary reason for selling a business is when the owners retire or are not passionate about the business anymore and are looking for a new challenge, said Jeff Herdzina, founder and president of ExitBig.

“The owner might take the business from startup to say $5 million in revenue and 20 employees, and it maxes out their skill set, so a new buyer can bring in a new skill set to take that business to a new level,” he said.

When a merger or acquisition happens, it must be the right time for both companies, according to John Haver, senior vice president of marketing and strategic development at Senior Market Sales (SMS).

Senior Market Sales, an insurance marketing company with more than 320 employees at
its Omaha headquarters, is actively pursuing acquisitions as a growth strategy, it most recently acquired Medicare Instructors.

“[At SMS] our focus is on quality and on taking care of the people involved,” he said. “By quality, we mean we’re being very selective. The right partner has to be a strategic fit, as well as a culture fit.

“Our long-term visions have to be aligned. And they have to have a history of profitable growth. We’re not looking for companies to fix. We’re looking for successful companies that can become even more successful with the right partner.”

The Right Time

“A strong economy always helps,” said HBE Managing Partner Scott Becker. “Right now might be a good time for businesses with excess cash. Lower interest rates and a strong stock market make [an M&A] attractive.”

Whatever the reason for the merger or acquisition, both parties must be ready.

“Transactions can be really stressful on a team,” Herdzina said. “Having the company in a good solid position may be the best time for the business to be passed off.”

Doing a thorough check on a company as the acquirer is highly important.

Terry Kroeger, president and CEO of Smith Kroeger, emphasized the need for firms to do their due diligence concerning revenues and expenses on firms they’re acquiring.

“What capital needs might be approaching that business?” he said. “How sustainable is the revenue stream? Are there any efficiencies you could realize after you make the acquisition?

“Have a really good understanding of what the business is and if the management’s going to stay, and make sure you’re comfortable with them. Or if management’s not going to stay, who’s going to run this for you?”

Herdzina emphasized asking the seller on their readiness.

“Ask questions around the seller’s readiness to exit the business,” Herdzina said.

“Sometimes people are just having a bad week. It doesn’t mean they’re ready to sell.

“I ask them if they’ve ever sold or bought a business before. If it’s their first time, there’s a lot more coaching. What will the company look like when the current owner steps out?

Often the owner is very hands-on in the day-to-day operation, and this could be detrimental when they leave.”

Determining business goals and intentions takes a team of professionals.

“A professional team of investment banker, attorney and accountant can run a full process to ensure the business owner leaves no stone unturned, whether they are selling or taking partial liquidity,” Grote said.

The Right Fit

The two companies must be enough of a cultural match to make their overall business operations a good fit, Becker said.

“Communication is so important,” he said. “How long will the current management team and the owners still be involved in the business? Are there any large sales concentrations where it’s important the customer stays on?”

Kroeger said it’s important to have a post-acquisition plan for everything that must be transitioned over. Here again, communication is key.

“Who will sign the checks,” Kroeger said. “Who will help build the business if you’re going to make any staffing changes, and how will you’ll execute that? Whenever you do a sizeable acquisition there’s ‘execution risk.’ Like anything else in life, it never goes quite as you’d hoped it would, so you must be flexible and ready to roll with the punches, depending on what occurs after the acquisition. Make sure your due diligence is complete and have fun with it. It can be really exhilarating.”

After the transaction

“The primary post-merger concern is integration of people and culture,” Grote said.

“Sometimes the business owner will remain involved in some capacity for a year or two
to ensure a smooth transition of significant customer, vendor, and employee relationships.”

Developing a concrete plan can ease that transition.

“In my mind, there are four things to think about [after the acquisition],” Adams
said. “Develop a profit and loss statement, understand current weaknesses and strengths of the new or combined business and what has changed from before the transaction, consider multiple options for the new organizational structure before settling on one, and communication with employees. Be flexible and realistic with what you are trying to accomplish through the transaction. During due diligence, unanticipated things come up all the time.”