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October 20, 2019


4 min read

What’s Missing from Your M&A Due Diligence Strategy?

Richard Byrd
What’s Missing from Your M&A Due Diligence Strategy?

I work with many companies going through mergers and acquisitions. And I see rigorous processes in several areas. Companies work on the deal for a long time, looking at the economics using different models to determine the best price to pay. They calculate the most advantageous tax structures. They’re also concerned with intellectual property and other legal considerations. All of this is essential.

But what CPAs and lawyers don’t tell you is that when you complete an acquisition you get a couple of things for free with your purchase: frightened employees and concerned customers, and both can have a major effect on the success of the deal.

Communicate Business Value—ASAP

A company enters into an acquisition so they can make money. More often than not they are looking to either gain market share or acquire new technologies. By and large, mergers and acquisitions happen with growth in mind. But growth doesn’t happen on its own. Companies need to communicate to key stakeholders. Customers. Employees. Investors. Vendors. Community. These important stakeholders will be very interested in the deal and can greatly influence its success.

Part of what might be told to investors is that they will save money on personnel by merging two companies. Naturally there is going to be a lot of apprehension and stress in the acquired company regarding job security. Your best employees will have options. If you don’t communicate with them effectively, they’ll be gone.

Another concern: customers might not necessarily want to work with the acquiring company. Customers often assume two things when one of their vendors gets acquired: prices will go up, and service will suffer. They may have had a strong relationship with the company that was bought and may not see any value associated with the acquiring company. A big reason for an acquisition is to gain market share, but that doesn’t do any good if customers leave.

These two examples reveal the need to communicate the benefit of the acquisition to different audiences—what they need to hear and what you need to tell them. How are you are going to add value to their lives? With you buying this company, what is in it for them? Many companies sadly don’t do this.

Think About Your Message from Day One

Communicating the acquisition value should be a primary focus and there are a host of questions to ask immediately to begin formulating an effective communication plan, like:

  • What is our outgoing message going to be?
  • How do we shape this message for our employees, investors, customers, communities?
  • What are our milestones? How will we communicate success and progress to employees and all other stakeholders?
  • What are we going to do with the other company’s logo? Do away with it? Change it? Leave it because the brand has a lot of identity? Merge two brands and create a new logo? Will we have two websites or one?

Also, think about how you are going to talk about the merger or acquisition over time. For instance, at the 1-year anniversary, it’s essential to communicate success stories to all of your stakeholders. This can help stock price, it tells employees you accomplished what you set out to do, and it can prove to investors through actual proof points the real benefits of the deal.

Don’t Overlook Brand Associations

In addition to communicating the value of the merger or acquisition, something that cannot be stressed enough is knowing the brand of the company you will acquire. I recently worked with a company that acquired a wellhead business that had some catastrophic failures in the market, but overall its technology was good, so it passed the technological reviews by the engineering teams. Still, market perception of the technology compromised the brand associations. Since no one was really exploring the acquisition’s brand and market perception, the acquiring company overpaid for the deal, and market growth was extremely slow.

The company kept the legacy brand name in place, and no matter how much engineering improvements they poured into the product line the specter of past failures still hovered over the brand.

Finally, the acquiring company rebranded the product under the parent brand. Trust in the product was almost immediate, and today the company is getting the market share they wanted in the first place, even outpacing the competitors in that market—just by rebranding the product.

Mergers and Acquisitions: My Final Chirp

If you are going through a merger or an acquisition, you really need to think about how you are going to communicate to everyone involved. You’ll also need to explore the brand of the company you are getting into business with. And please, put a line item in your budget for this research and communication. It’s not cheap, and you need to be prepared for it, but in the end it’s a lot less expensive than a bad deal.

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