Mergers and Acquisitions: 6 Best Practices for Mid-Sized Businesses

In today’s market, managing mergers and acquisitions (M&A) is one of the most important skillsets for mid-market businesses. It’s also one of the most challenging.

Today’s market conditions push businesses of all sizes to acquire other businesses and/or sell their own. The integration of disruptive new technologies across nearly all industries – along with other disruptive forces, such as COVID-19 – means that acquiring other businesses for their expertise and capabilities is a critical part of business strategy.

In fact, it’s how much of the growth happens in today’s market. Rather than simply assembling a new team or entire department from scratch, companies instead acquire and integrate other businesses, allowing them to adapt quickly and effectively.

“Agility” is a buzzword you hear all the time, but this is what it’s really referring to: using strategies like M&A to make your private company or public company more fluid and adaptable. The goal is to be not only capable of change, but capable of changing at the speed of the market.

M&A is everywhere. About 25% of mid-sized companies acquire or sell a business each year.

But that doesn’t mean business leaders are any more comfortable with it. That’s especially true for mid-sized businesses, which, unlike global corporations, probably don’t have a large, specialized M&A team on hand. A recent study by the National Center for the Middle Market and The Ohio State University surveyed 400 middle-market business executives and found that the majority had minimal experience with M&A. Most expressed discomfort at key aspects of the transaction process.

This inexperience is a problem. According to the study, “As a result… middle-market executives fail to drive the best bargain, or may encounter unexpected challenges.”

And while you might assume that the hardest part of a transaction would be finding a buyer or seller, the transaction process itself is an even bigger issue. In the study we mentioned above, 36% of executives cited finding a buyer or seller as one of the toughest parts of the process, while 38% cited “getting the strategy right.”

It’s true that finding a buyer or seller is challenging, but actually managing the M&A deal – typically a three to six-month process – can be extremely demanding in terms of time, resources and expertise, especially for mid-market companies.

At Dugan & Lopatka – one of the leading accounting firms for mergers and acquisitions in Chicago – our team of CPAs specialize in helping middle-market businesses navigate the mergers and acquisitions process, providing a range of transaction services. We’ve worked with numerous companies across numerous industries – construction, distribution, manufacturing, real estate, service providers, and more – to maximize the value of each transaction.

Every deal is unique. But there are certain best practices that apply to nearly every successful transaction. Here are some of the most important for buyers and sellers alike.

Best Practices for Mergers & Acquisitions

Always be “deal-ready.” In the current market, slow and steady usually doesn’t win the race. But preparation does. In our blog post, Mergers & Acquisitions: How to Get “Deal-Ready”, we discuss the importance of preparing your business for M&A, whether or not you have plans for a transaction in the near future.

It’s important to be “deal-ready” because many of today’s transactions are spontaneous (relatively speaking). An opportunity for a transaction presents itself, often triggered by shifting market conditions, and buyers and sellers alike must respond efficiently to maximize the value of the transaction.

Being “deal-ready” means you have the infrastructure to either buy or sell in a relatively short period of time. It also means that you have much of the “homework” done ahead of time, allowing you to focus on the deal itself.

Structure the transaction process ahead of time. M&A transactions are time-consuming and resource-intensive. Rather than diving deep into each proposal, many businesses have a committee first review proposals. Then, only approved proposals undergo a more thorough audit.

In a survey of 221 organizations, 75% of participants said that using this sort of selection process made their M&A strategy more efficient and ultimately saved resources.

Of course, a middle-market company probably won’t have a large, dedicated M&A team at their fingertips. But you can work with your M&A advisor to incorporate the same principle – a good vetting process that filters out unlikely proposals – into your practice.

Focus on timing. The timing of a transaction is as critical as any other part of the M&A process. Monitor your cashflow projections, account for shifting market conditions, and ensure that you’re timing the transaction to maximize its value.

Don’t DIY. You’re an expert when it comes to your own business. Maybe you’re an expert when it comes to the business with which you’re engaging in a transaction, too. That doesn’t, however, mean you’re an expert in mergers and acquisitions.

M&A involves complicated tax rules, auditing, and business maneuvers. It also requires a truly objective review of your business, which is why every business owner should bring in an independent advisor to guide them through the M&A process and perform due diligence.

We recommend choosing an advisor who specializes in M&A for middle-market companies. When it comes to transactions, large corporations generally use the same principles as mid-sized companies, but the specific strategies, tactics and distribution of resources differs. Ideally, you want an advisor who works with mid-market companies every day.

Don’t rush. We mentioned above that “slow and steady” isn’t exactly the guiding principle of today’s market. But once you’re engaged in the M&A process, don’t take any shortcuts. Bring in experts, get second opinions, perform due diligence on target companies, and talk to people both inside and outside your business before making a final decision.

If your business is “deal-ready” – if it’s been prepared for M&A ahead of time – you can do it right and do it quickly.

Follow through. If you’re a buyer, you should account for integration – the process of bringing the acquired business into your organization – from the very beginning. The process of integration may affect the timing of the transaction, the net cost, cashflow projections, and other elements of your strategy.

When the deal is complete, monitor how your acquisition impacts your overall business. Is it having the intended effect? Are there ways you could adjust its integration for better results? Tracking this data can help you optimize the value of your investment.

Whether you’re a buyer or a seller, you should use every transaction as a learning opportunity. What insights have you gained about your M&A process? How can you incorporate them into future transactions? How can you be even more deal-ready?

Often, one of the most valuable aspects of the M&A process is what you learn about your own business.

Want to connect with an expert about mergers and acquisitions, or other aspects of your business? One of the leading accounting firms for mergers in Chicago, Dugan & Lopatka provides a wide range of services, from tax solutions and business advisory to outsourced accounting and more. Our CPAs specialize in serving mid-market businesses across a variety of industries. Learn more about our services here.

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