How to get the most out of M&A

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ECI’s Investment Director Skyler ver Bruggen and North America Growth Specialist Brett Pentz recently hosted a webinar as part of our Unlocked series of events for portfolio companies. The webinar focussed on how to get the most out of M&A, with Skyler and Brett joined by Andrew Collis, Chief Financial Officer at Moneypenny, and Paul Burton, Chief Strategy Officer at Commify.

The panel has a huge amount of M&A experience so, for those not able to join the webinar, we’ve summarised their eight key learnings.

1. Clearly defined strategy

Working on deals can be time-consuming and uncertain, so having a clearly defined strategy from the outset is vital. Management teams, and subsequently Boards, need to have open and honest conversations to be completely aligned about direction, sources of growth, and execution considerations.

2. Relationships

The most important factor in any deal (and a primary objective!) is to become a seller’s favourite destination for their sale. Meet people face-to-face (especially important for UK buyers to be considered by US sellers), be honest and communicate how much you admire their business. Demonstrating patience and listening to understand seller motivations is important in building that connection as well. The stronger the relationship you build, the higher the likelihood that a deal can be made off market.

3. Keep the Board updated

Be sure to communicate progress at board meetings and key updates in between. Ensure the team is up-to-speed on progress, challenges, and responses to their questions to avoid any surprises – a standard M&A page in the board pack is recommended..

4. Identifying resource levels

Narrowing down and qualifying targets is a big resource burden, which can be amplified depending on your strategy. Is it one or two opportunistic deals, or a full-on M&A strategy of 15 or 20 deals? If it’s the latter, you’ll need full-time resource. If the strategy is more opportunistic, identifying trusted advisors you can work with is critical. Carve out chunks of their time, schedule regular updates, and most importantly, hold each other accountable.

Skyler ver Bruggen, Investment Director and Brett Pentz, North America Growth Specialist

5. Strategic outreach

One tactical consideration is how you build salience when reaching out to potential opportunities, so you get a response and quickly qualify them. Success can often be found on the back of industry conferences, especially those where you’ve had an active presence – it’s a great way to bump into potential targets or build recognition so that your next message stands out in someone’s inbox.

6. Earn-outs

Structure them carefully, depending on the nature of the industry and the behaviour you want to drive. Earn-outs can work well in a recurring revenue model, where customer based revenue is stable and you are in control of the cost base (to avoid over investment that pushes down EBITDA to drive revenue). However, where revenue is more uncertain, or one-off, there’s the potential for a seller to drive low-quality, unrepeated revenue to hit the earn-out. If the acquisition is competing for the same customers as the buyer, earn-outs should be avoided.

7. Integration

A huge topic in itself, and getting it right is obviously paramount. Broadly it can be split into three buckets:

  • Onboarding: define legals, financial reporting, cash management, etc.
  • Systems and data: specify, choose and optimise a set of systems for running the business (i.e. Salesforce, HubSpot, Tableau) and develop a methodology for rolling these out. It doesn’t need to be in place from day one, but a clear time frame and plan is essential.
  • Platform: Don’t underestimate how big platform integration and migration are, as it can take years to get right. Good integration is all about good people and requires dedicated project management. Be clear about tranches, responsibilities, timings and ownership.

8. Winning hearts and minds

Any acquisition is a time of worry and instability for employees. Spend time with the team at all levels and present an overview of what the new parent company can do for them. Outline the high-level opportunity, the potential career progression and the stability it provides. Clear communication may seem like a small task, but it’s worth taking the time to make sure you get it right.

You can listen to the whole webinar here.

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