Think You Don’t Need an M&A Strategy? Think Again


Will 2013 be the year M&As make a comeback? Will it be the year when you consider selling your business, merging it with another, or making an acquisition of your own?

Let’s take a step back. Will 2013 be the year most business owners realize the need for an M&A strategy, whether they’ve seriously considered being part of a transaction or not?

Over the years, I’ve found that the best business owners have M&A strategies long before they plan on participating in the M&A process. Businesses can benefit from considering a merger or acquisition—or a sale—even when they plan to keep the status quo for the foreseeable future.

Merely considering these actions will provide a business owner and its top management a fresh perspective on their company, its strengths and weaknesses, its operations, as well as their industry, the markets, and significant trends.

Pretend, for instance, that the company had to be sold in a short-term time frame. Who and what types of suitors would want to acquire your company and why? What actions could be taken in areas such as cutting costs and raising revenue and profits to make the firm more valuable prior to the sale? Would you try to secure long-term commitments from your best customers? Think deeply about the answers, as if your retirement fund depended on it.

Now consider a scenario in which the firm needs to be sold in the longer time frame, say three years. What should or could be done between now and February 2016 to make the business as valuable as possible? Would you make investments in equipment, talent or diversifying products and services? Would you explore opportunities in new markets? What’s the value of your company now and what can it be worth in three years with a strategic plan in place? If the forecast is for the marketplace to shrink, and you’re the type of owner that will not be proactive, you may have just come to the realization that it may be better to sell now than sell later.

Try the same exercise with an acquisition in mind. If you had to acquire a company in order to successfully execute your short-term (one-year) business plan, what type of company would it be? A strategic competitor, so that you can gain its customer base? A company that markets services and products complementary to your business, so you could expand offerings? A company that had next-generation technology or great intellectual property?

Now consider the company that should be acquired to help fulfill your company’s long-term (five-year) business plan. Is it the same company that would be acquired for the short-term? This process makes owners and top management truly analyze their long-term plans for the company and how they’re going to implement them. This is especially true if the company is relatively young, and hasn’t defined “what it wants to be when it grows up.”

The final part of this exercise is asking the same short- and long-term questions with regard to a merger, partnership, or significant joint venture. What would your business gain? What would it lose? If your company has a distinct culture, would it fit well with the newly merged entity? Is there a lack of culture that so that the personality of your company might be overtaken by the other company’s culture?

Just jotting down notes throughout this exercise is an eye-opening experience, and may change owners’ and top management’s minds about their previous notions regarding acquiring, selling, or merging.

This year we and other experts have forecasted many businesses to take that bold step and either merge or acquire another business. There is a lot of pent-up demand from buyers who have been waiting for the presidential election to be decided, as well as congressional decisions on tax rates, and the direction of the economy.

Look for a lion’s share of the activity to occur in technology and life sciences—two industries that depend on funding—which had been most hurt by the economy as sources of capital had to scale back. As the economy improves, the funders and companies will be proactively looking for companies that have the products and intellectual property to refill their pipelines.

Private equity firms, venture capital, sponsors and family offices will also be driving transactions. Many have been sitting on the sidelines for the better part of the last three years and are flush with cash. Their most likely targets will be companies in mature, niche industries that can be “rolled up” or consolidated into one entity that benefits from economies of scale and a stronger marketshare.  

As more and more companies re-engage with M&A, it means more competition and quicker decisions to be made. Those business owners that have done the deep thinking—and the analysis of different M&A scenarios—will be the best prepared to act.