Every day, there are stories in the financial press about merger and acquisition deals that are being made in SMEs and large corporations. While increasing revenue and gaining exposure to new clients are typically the primary reasons for a deal for a merger, it is imperative that any business looking to enter the M&A game has a well thought out strategy to ensure the success of a deal.
A successful M&A involves a complex procedure and the final outcome is contingent upon a myriad of factors that have to be taken into account by both parties. It is essential to have a high-quality management team in place to ensure that your company can successfully navigate the M&A process and create value. Having trusted external consultants and accountants who can aid in this process can enhance the overall credibility of your M&A strategy.
The first step is to conduct an in-depth financial health assessment of your business. This includes looking over the financial statements for profit and loss as well as evaluating cash flow and debt/equity ratios and determining whether you have the ability to fund an M&A deal. The financial health check will reveal any differences in your Management Accounts and Statutory Filed Accounts, which could create confusion for a buyer.
The cost of integrating both companies is an additional aspect. This could be in the form of physical costs such as merging systems, offices and employees; or it could be in the form of human capital costs, such as the calculation of the costs of compensation and benefit programs. By involving experts in human capital early in the process, you can precisely assess the costs and incorporate them into your purchase price negotiations.