merger and acquisition business plan

Business Acquisition Plan: What to Include in 2024 (+ Template)

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

A business acquisition plan is an important component of planning for an M&A transaction, regardless of whether you require external financing. A solid business acquisition plan should lay out the rationale for the investment, and how it will add value for the entity. In this article, FirmRoom takes a closer look at how these documents should be crafted.

Understanding Business Acquisition Plan

A business acquisition plan is a strategy document, which serves the purpose of a business plan for an M&A transaction.

It outlines the motives behind a transaction, profiles of the companies involved in the transaction, how the transaction will generate value for the entity which is driving it, how the two companies will be integrated, and how the merged company (or simply acquired company in the case of an investment firm acquiring a company) is expected to perform.

Reasons to Have a Business Acquisition Plan

An acquisition plan provides its users with a roadmap to making the transaction a success. Even before the transaction is initiated, it acts as a reminder to the sponsors, what they’re looking for, why they’re looking for it, and how they’re going to ensure that the transaction is a success.

In general terms, the reasons to have a business acquisition plan are:

Strategic alignment

The overriding goal of a business acquisition plan, as the opening text alludes to, is strategic alignment: ensuring that those undertaking the deal, for lack of a better expression, ‘stick to the plan’, around the motives and means for making the deal a success.

Valuation and pricing

The plan should include strategies and methodologies for valuing the target company. It should guide the deal participants on how to determine a fair value for the target, assess synergies, and estimate future financial returns. It also sets a limit on how much the company can extend itself financially for a deal to occur.

Financing and resource allocation

Financing (sources and uses of funds) is just one part of the resource allocation conundrum. The business acquisition plan also outlines the working capital needs, who works where, how expenditures are going to shift, what capital assets are required, and more.

Business Acquisition Plan Template

The insight that FirmRoom has gained from working with hundreds of companies on thousands of transaction, have been collated in a business acquisition plan template.

This provides a detailed roadmap of what should be included in an effective business acquisition plan, ensuring that its users have everything in place for the conclusion of a successful transaction.

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Creating a Business Acquisition Plan Step-by-Step

While developing a business acquisition plan is recommended, having an ineffective acquisition plan is worse than having none at all.

The document has to be watertight, creating no doubt in the reader’s mind about the benefits of an acquisition.

A strong business acquisition plan should make the reader think that it makes far more sense to go ahead with the transaction than for the company to continue in the status quo.

That being said, the following should only be seen as a rough step-by-step guide to putting together a business acquisition plan:

Strategy development

Best practice:

• Identify where the company wants to be in each of the next five years, possibly on a month-by-month basis, and how it plans to get there. See here for example.
• Identify the key performance indicators that need to be tracked to ensure that the company meets these objectives.
• Based on both of the above, ask whether an acquisition is a crucial part of the company achieving those objectives, before moving forward.

Identifying and evaluating target companies

• Understand where the companies that fit into the strategy will be found , and be thorough and objective in the search for them.
• Be realistic about the companies that can be acquired/merged with, including valuations ,  so as not to waste resources for other companies and your own.
• Remember that just because a company is the only one that’s available, it doesn’t mean that a transaction is a good idea.

Due Diligence

• Use technology ; any M&A practitioner that decides against using a sound technology platform for due diligence is doomed to failure.
• Adopt a mindset where due diligence is considered an investment in the acquisition, rather than a cost to your own company;
• Do not fall for the M&A acquirer’s fallacy of ‘we’ve come this far, so we can’t go back.’ If due diligence says the deal isn’t right, it isn’t.
• Begin the post-merger integration phase as soon as the deal begins to look like a realistic possibility (something which DealRoom is designed to cater for).

Deal structure and negotiation

• Leverage the findings of due diligence to create a more informed negotiation process.
• Remember that there will be back and forth with the seller, and they can be reasonably expected to overvalue their asset.
• Consider all market outcomes (i.e. downturns, current value of stock vs. future value, etc.) when creating an offer. Avoid irrational exuberance.

Post merger integration (PMI)

• Keep in mind at all times during the PMI phase that this is where most of the value can be generated and lost in a transaction.
• As mentioned, begin the process as soon as possible. If the transaction is visible on the horizon, you need to start thinking about its integration.
• Don’t write this off as a ‘soft’ or unnecessary part of the transaction - it won’t be soft when it impacts on your income statement.

Common mistakes to avoid when writing a business acquisition plan

Despite plenty of advice to the contrary, enthusiastic CXOs often write acquisition plans which fail to avoid the pitfalls.

These are among the most common:

Putting the acquisition before the strategy

The acquisition is part of the overall strategy, not the other way around. Companies that are approached by others about a deal, and then somehow convince themselves that there is a strong rationale for a deal, fall foul to this backwards logic.

Management hubris

M&A is an area ripe with management hubris (take a glance at Google Scholar at all the academic texts that link the two). That means management hubris inevitably finds its way into business acquisition plans. Avoid it at all costs - it’s a highly costly behavioural pattern for companies of all sizes.

Lack of detail

The business acquisition plan is a strategy document, not a marketing one. That is to say, it should break down in a step-by-step fashion how the deal will generate value. The more detailed the better. “Creating an outstanding organization” is great, but writing it in the business acquisition plan won’t add any value.

Business acquisition plan template

A business acquisition plan is a hugely worthwhile document that all M&A practitioners should write in order to discern the value of a transaction and how that value can be extracted. It is the business plan for an M&A transaction.

Get your free template below to receive guidelines on how to create the document and make it work for your transaction.

Frequently Asked Questions (FAQs)

Successful acquisition starts with a great plan

Get your roadmap for precise valuation planning to due diligence checklists and synergy tracking. Close deals faster, smarter.

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How To Write an Acquisition Business Plan

In the world of business, acquiring another company is a bold move. It’s a venture filled with both opportunities and risks. To navigate this complex journey successfully, you need a well-structured acquisition business plan. This isn’t just any document; it’s your guiding star, your blueprint, and your key to making this business acquisition a triumphant success.

Acquiring a business is no small feat. It’s a defining moment in the life of any company, and the acquisition business plan is the compass that will lead you through this challenging journey. In this guide, we will not only emphasize the significance of having a comprehensive plan but also provide you with an in-depth understanding of the critical elements that should be present in your plan.

What is Acquisition Planning?

Acquisition planning is a structured process for identifying and acquiring goods or services to meet an organization’s needs. It is a critical part of the procurement process, as it helps to ensure that the organization gets the best value for its money.

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How to create an acquisition business plan step by step

Start with an executive summary.

The executive summary is like the opening scene of a blockbuster movie – it sets the tone and captures the audience’s attention. It’s a concise yet impactful overview of your acquisition strategy. This section serves as the very first impression potential investors and partners will have of your plan.

In your executive summary, include key highlights such as the purpose of the acquisition, the target business, and the expected benefits. Remember, it should be captivating, informative, and compelling.

Get to Know Your Company

In the ‘Get to Know Your Company’ section, you provide an extensive profile of your own organization. This is your opportunity to showcase your strengths, experience, and financial stability. It’s essentially the part where you introduce yourself before a crucial presentation.

Outline your company’s history, achievements, and expertise. Explain why your company is the right entity for this acquisition. Make sure to instill confidence in the minds of your readers and potential stakeholders.

Understand the Industry

An acquisition is not just about buying another company; it’s about entering a new landscape. Understanding the industry in which your target business operates is crucial.

Here, you need to delve deep into the industry. Share insights about market trends, potential for growth, and any challenges that might be on the horizon. This section serves as evidence that you’ve done your homework and are prepared for what lies ahead.

Evaluate the Target Business

Let’s talk about the business you plan to acquire. In this part of your business plan , it’s your chance to discuss the target business in detail. This includes its history, financial performance, and the assets it brings to the table.

Highlight the aspects of the target business that are promising, and also acknowledge where improvements can be made. This demonstrates your realistic approach and your clear vision for the future.

Lay Out Your Acquisition Strategy

This is where you outline your plan for acquiring the target business. Your strategy should include the deal structure, financing details, and a clear timeline. Explain how you intend to integrate the newly acquired business into your existing operations seamlessly.

In this section, it’s essential to exhibit your strategic thinking and your ability to execute the acquisition effectively.

Your Marketing and Sales Game Plan

Once the acquisition is complete, what’s your strategy for marketing and selling? How will you use this new addition to your portfolio to grow your customer base and, consequently, your revenue?

This part of your plan should outline your marketing and sales strategies post-acquisition. It’s the place to showcase your vision for the future and your ability to drive results.

Crunch the Numbers

This is where the hard numbers come into play. Provide detailed financial projections, including income statements, balance sheets, and cash flow forecasts. These projections should offer a clear picture of the expected financial benefits of the acquisition.

These figures are not just dry statistics; they are the financial backbone of your plan, demonstrating the potential return on investment.

Deal with Potential Risks

Every business venture comes with its share of risks. In this section, you should identify potential risks associated with the acquisition and explain how you plan to address them.

This shows your meticulousness and your commitment to risk mitigation, which is crucial for building trust and confidence among your stakeholders.

Navigate Legal and Regulatory Matters

Acquisitions often involve complex legal and regulatory matters. It’s essential to discuss these aspects in your plan. If there are compliance issues, explain in detail how you intend to address them.

This section assures your readers that you’re well-prepared to navigate the legal intricacies involved in the acquisition.

Meet the Team

A successful acquisition is a team effort. Introduce the key players involved in the acquisition and explain their roles. Highlight their experience, qualifications, and achievements.

By showcasing the strength of your team, you demonstrate that you have the right people in place to execute the plan effectively.

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Merger and acquisition business plan template.

Grab our Merger and Acquisition Business Plan Template to make your merger or acquisition journey smoother. This template is packed with key sections and detailed insights, ensuring you cover all aspects of your acquisition strategy. Let this template be your roadmap as you navigate the complexities of business acquisitions. Start your journey toward a triumphant merger or acquisition business plan today! Download M&A Business Plan Template

Optimizing a Business Acquisition Plan with Structured Processes

Crafting a business acquisition plan isn’t just about signing papers; it’s about blending smart strategies that supercharge success. By weaving organized methods into this plan, you’re making sure that the merging companies don’t just coexist but flourish together.

Making It Work Together

Think of it as putting puzzle pieces together. Show how a carefully planned approach isn’t just about buying a company; it’s about merging their ways of doing things into a cohesive strategy. This part is about combining different systems, rules, and methods smoothly.

Sharing the Secrets

Talk about finding and using the best ways of doing things from the company you’re acquiring. Explain how mixing their successful methods with yours makes everything run smoother and more efficiently.

One Size Fits All

Show why having a set way of doing things helps. Discuss how having consistent methods, from handling money to everyday tasks, helps the new company grow without unnecessary overlaps.

More Bang for Your Buck

Explain how having a well-thought-out plan gets you more than just a new company—it increases your profits too. Highlight how bringing in smart strategies boosts how well the business works and makes it stronger.

What Makes You Special

Talk about the advantage you have—the ability to look at different ways companies work. Explain how this helps you find and use the best ideas, making all your businesses better.

The Big Picture

Wrap it up by saying this plan isn’t just a bunch of papers—it’s a map to a successful future. It brings together the best parts of different companies, wipes out any problems, and sends everyone toward success.

In the concluding section of your plan, summarize the key points. Emphasize the potential for success that your acquisition business plan represents. Leave your readers with confidence in your approach and a sense of optimism about the future.

In conclusion, an acquisition business plan is more than just a document; it’s the heart and soul of your acquisition strategy. A meticulously crafted plan, like the one described here, can be your key to not only a successful acquisition but also a confident and prosperous future in the complex world of business acquisitions.

By following these steps and adding depth to each section of your plan, you can create a compelling narrative that instills trust and confidence in your stakeholders. This detailed roadmap will position you to excel in the intricate and rewarding realm of business acquisitions.

What is acquisition in business strategy?

An acquisition is a business deal where one company acquires and assumes control of another company. These transactions are a fundamental component of mergers and acquisitions (M&A), which represents a professional field in corporate law and finance centered on the acquisition, sale, and merging of businesses.

What is acquisition in business example?

An acquisition is a business deal in which one company obtains companies, organizations, or their assets in exchange for some form of consideration from another company. Examples of such transactions include Google’s purchase of Android for $50 million in 2005 and Pfizer’s acquisition of Warner-Lambert for $90 billion in 2000.

How do I prepare my business for acquisition?

• Perform an internal audit.
• Establish a well-organized company structure.
• Tidy up your financial statements.
• Renew your most crucial contracts.
• Create a strategic plan for the next five years.
• Address any pending legal and tax matters.
• Optimize your business operations.
• Ensure you have a top-notch team in position.

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How to plan and execute successful mergers and acquisitions

Lucid Content

Reading time: about 12 min

A merger is defined as two or more companies mutually agreeing to come together to form a new company.

An acquisition occurs when one company takes over another company. The purchasing company buys a controlling interest or the entire business operation, including assets. The purchased company is absorbed by the purchasing company and a new company is not formed.

There are many reasons why mergers and acquisitions occur, all of which ultimately boil down to economic reasons—you want to make more money while spending less. Common reasons for mergers and acquisitions include:

• Decrease the competition.
• Increase operational capacity and efficiency.
• Grow market share.
• Increase revenue and decrease costs.
• Diversify products or services.
• Acquire unique, patented technology that fits well with the acquiring company.
• Combine similar companies, products, technologies, and efforts.

Let's discuss the lifecycle of mergers and acquisitions and outline the steps you need to take in order to be successful.

Mergers and acquisitions life cycle

The mergers and acquisitions (M&A) life cycle is broken down into three categories: Strategy, Execution, and Integration.

Strategic planning helps protect you from M&A failures. Just because you want to buy a company doesn’t mean you should buy that company. There are several questions you should ask yourself when researching target companies.

• Why do you want to acquire, or merge with, another company?
• What is your business objective?
• Do the target company’s products or services fit with your objectives?
• What value will the deal bring you?
• What is the value of the target company?
• Does the company culture fit with your company?

These types of questions can help you narrow your choices as you screen the companies you are interested in, determine target company valuations, structure deals, and analyze how your business decisions will give you an advantage in the current market.

Importance of synergy

Synergy is a combined action or operation. Many companies decide to merge with or acquire another business based on potential synergies that can come from combining similar products and technologies. The following are some benefits that synergy can bring when companies merge:

• Combine workforces—Identify and eliminate redundancies and restructure workflows to increase efficiency and to accommodate increased business volume.
• Combine technologies—Combining similar technologies can help a company to achieve strategic advantages in your market.
• Reduce costs—Consolidation can improve your purchasing power and decrease costs as you negotiate better terms with vendors based on the need for more materials because of increased output.
• Market expansion—There is potential that combining companies will create an advantage in a particular market, or enter into a market that was not previously available to you.

During this phase, you’ll want to gather experts and people with M&A experience. You need people who are expert advisors in HR, IT, operations, legal, taxes, and finances to help you cover all your bases and to help the transition run smoothly.

All of this experience, expertise, and knowledge come together to ensure that closing the deal will continue to meet the goals and objectives you established during the strategy stage.

Integration

Integration brings another set of challenges because now two companies with two cultures need to figure out how best to work together.

You will need to put together an integration team to help the integration run smoothly. Members of this team should include:

• Senior executives to keep stakeholders informed about merger progress, to communicate the value of the merger, and to ease concerns about the company’s future.
• Due diligence team to retain important information. The due diligence team works with the integration team to ensure that all data is successfully transferred, that there are no redundancies, and that no information is lost.
• Human resources to communicate with and answer questions from employees about job positions, benefits, roles, and expectations going forward. 
• Change management experts to help the purchased company feel cared for, to drive employee morale, and to help employees and stakeholders buy in to the idea of being acquired. Change management experts can help to avoid problems.

Consider using existing org charts and drawing new charts as needed during the integration phase. Org charts can give you valuable information like where people are physically located, what teams they are assigned to, their specific roles and responsibilities, and who reports to whom. This information can give you insight as you plan for restructuring organizations, departments, and business units. It can also help you understand the human capital of the organization that was just purchased. 

Steps for the buyer in the M&A process

Following a step-by-step process is essential for successfully navigating your way through the complexities of M&A. Below we briefly discuss 10 steps that the purchasing companies typically use during the M&A process.

Step 1: Develop an acquisition strategy

This step falls within the strategy phase of the M&A lifecycle. It is essential that you know why you want to acquire a company and what you expect to gain from the merger.

Step 2: Set the M&A search criteria

Determine the criteria for searching for potential targets, such as location, industry, profit margins, customer base, and so on. 

Step 3: Search for potential acquisition targets

Use the search criteria you identified to look for and evaluate companies that may fit with the goals you want to achieve from acquiring the other company.

Step 4: Begin acquisition planning

Contact the companies that were found in your searches. Get more information to begin evaluating the potential value of a deal and to see how open the company is to M&A. 

Step 5: Perform valuation analysis

When you find a company that is interested, ask for financial, market, and other information that will help you to begin determining the company’s value as a standalone company and a potential acquisition target.

Step 6: Begin negotiations

Create some valuation models to give you enough information to make a reasonable offer. After the offer is made, negotiate terms and iron out details.

Step 7: Perform M&A due diligence

When the offer is accepted, your due diligence team starts an exhaustive process that works to confirm or correct the purchasing company’s assessment of the target company’s value. The team performs a detailed examination and analysis of the target company’s entire operations including finances, assets, liabilities, customers, employees, and so on.

Step 8: Draft a purchase and sale contract

If due diligence does not unearth any major problems or concerns, write up a final contract for the purchase by the acquirer and the sale by the target company. The contract defines the type of purchase agreement—asset purchase or share purchase. 

Step 9: Develop a financing strategy for the acquisition

Financial options have most likely already been explored, but at this step you need to work out the details after the purchase and sale contract is signed.

Step 10: Close the deal and begin acquisition integration

After the deal is closed, the management teams from both companies work together to integrate the two businesses into one as seamlessly as possible. Members of the HR team and change management experts work to make employees feel like they are all part of the same team. Use org charts to get a quick overview of company hierarchy to help with restructuring and reorganization.

Best M&A practices for the buyer

Because M&A is a complex process, you will need to pay attention to detail, remain focused, and be willing to compromise. Below are a few best practices to consider when you are on the buying side of the M&A.

Be diplomatic and sensitive with your offer —Don’t make this a hostile takeover. You should have done your homework and should have found the company that best fits your criteria. Your offer needs to be beneficial to you as well as to the company that is being purchased.

Put together a team of experienced leaders and advisors —Experience and strong leadership can help put all interested parties more at ease with the process. If your team doesn’t act like they know what they are doing, it will be harder to get buy-in from employees.

Culture fit should be top of mind —Keep in mind that there could be some pushback from the company being acquired if the company cultures clash. 

Be trustworthy —Be honest throughout the M&A process. The acquisition will fail if employees from the purchased company feel that the buyer is dishonest and untrustworthy. 

Communicate and be transparent —M&A is a stressful time for employees. Keep the lines of communication open to help alleviate fears and anxieties that could negatively impact productivity. Answer questions honestly and promptly.  

Develop a transition plan —Before the deal is closed and even before due diligence is completed, work on a transition plan. Work with HR and use org charts to evaluate employees to find the best fit for leadership positions and team assignments.

Steps for the seller in the M&A process

It’s possible that a purchasing company might have more experience in the M&A process than the selling company. However, the seller also plays a key role in the process and should not just sit back and let the buyer call all the shots. The following are a few steps for the seller to take to help with mergers and acquisitions.

Step 1: Define the strategy

Just like the buyer needs to know why they are looking to acquire a company, the seller should have a clear idea of why they want to sell. Know what the rationale is and what objectives you want to achieve from the sale. Identify the buyers, or the qualities you want in potential buyers, that would contribute to an ideal selling situation.

Step 2: Compile information

Put together a comprehensive informational kit to formally present your company’s products and services, technology, financial standing, and market positions to buyers.  

Step 3: Contact buyers

Whether a buyer reaches out to you or you reach out to potential buyers, be strategic and only talk to companies that will be a good fit. Contact more than one buyer, but don’t waste time with buyers who are unlikely to acquire your business. 

Step 4: Take bids

Ideally, after companies have talked to you and evaluated the informational materials you have put together, the offers will start coming in. You never want to take the first offer. Weigh all the offers to see which is the most beneficial for you and for the buyer.

Step 5: Meet and negotiate with interested bidders

Meet with the companies that are interested in purchasing your company to find out more about their intentions, what their needs are, and what they are proposing and offering. After you have looked at bids from the interested parties, start the negotiations. Refer to your defined strategy to help you narrow down to the best candidates. Remember that until the company is sold, it is still your company. Any promises made by either side are moot until negotiations are completed and the final agreement is signed.

Step 6: Draft an agreement

The buyer and the seller work together to draft a mutually beneficial deal. Once you enter into an exclusivity agreement, it means that you are locked into an agreement with the company that wants to acquire your company. At that point you can’t seek out other buyers or enter into negotiations with other entities.

Step 7: Facilitate buyer’s due diligence

The buyer will have to complete due diligence before the sale can be completed. It can take up to two months to complete due diligence. Help speed up the process by gathering all documentation ahead of time and stay in close contact with your buyer to help solve any problems and issues that may come up.

Step 8: Get final board agreement

When the due diligence process is completed and the buyer wants to go forward with the purchase, get final agreement from the board.

Step 9: Sign the agreement

When both companies have signed the final agreement, the company has been sold and has merged with or been acquired by the buyer.

Best M&A practices for the seller

Mergers and acquisitions can be a long and emotionally draining process. You will need to remain focused to ensure that you are getting the best deal. The following are a few tips and best practices you may want to consider during the process.

Don’t take the first offer —Unless it is your only offer, the first offer may not be the best offer. Even if it is the only offer, you are free to negotiate if you feel like the offer undervalues your business and technologies.

Bring more than one buyer to the table —This gives you a better opportunity to determine which company is a better fit. While the sale is about money, it’s not all about the money. You need to sell to the company that most closely aligns with your company’s values, culture, work ethic, and so on. 

Form a team of experienced leaders and advisors —Working with, and listening to, people who have experience in these types of business dealings can help you to make informed decisions. Don’t rely on analysis alone. Talk to experienced buyers and sellers and be open to the advice they give you.

Don’t ask too much or too little for the business —A really high or unrealistic price tag can stop negotiations before they begin. On the other hand, setting a price that is too low gives the impression that you don’t understand the worth of your business. Make sure you know what the company—including its technology, assets, and human resources—is worth.

The M&A process doesn’t happen overnight or even in a couple of weeks. It is a long, complex, and detailed process that requires patience, diplomacy, compassion, and compromise. The steps and best practices we’ve outlined can help you to remain focused, pay attention to detail, and get the deal done right.

How can you better prepare employees for an M&A? See our list of guidelines.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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Mergers & Acquisitions Process: Guide and free template

Master the art of M&A with our comprehensive Mergers & Acquisitions process guide. Delve into strategic planning, transaction nuances, and post-merger integration. Download our free template for a more structured approach and ensure a seamless merger or acquisition.

StrategyPunk

M&A process introduction

However, an M&A deal is challenging, especially if you want to get the best value from it. Before signing on the dotted line, you must know what you’re getting into.

For any deal, the seller and buyer must understand the milestones and critical steps of a standard Mergers and Acquisitions process.

What is M&A?

You can also think of mergers and acquisitions as two ends of a spectrum. Mergers are when two companies decide to go into business together, while acquisitions happen when one company purchases another.

What are the three stages of M&A?

The process aims to create value for shareholders by acquiring an existing business.

M&A Strategy

M&a transaction, m&a integration.

We integrate operations, employees, and other resources acquired from an acquisition into the company's business operations.

The three stages of an M&A deal

Stage 1: m&a strategy - mapping out your company’s strategy.

The first step of your M&A process is to map your company’s strategy.

Stage 2: M&A Transaction - Due Diligence and Negotiations

Due diligence process.

Now that you’ve found the suitable acquisition targets, it’s time to dig into due diligence. Due diligence is the investigation that occurs when one company considers purchasing another.

Negotiation

M&A deals are complex and typically involve a series of negotiations between the acquirer and the target. The main goal is to strike a mutually beneficial agreement for both parties.

By taking these steps, you can ensure that your M&A deal goes smoothly from start to finish.

Stage 3: M&A Post Meger Integration

Many variables are at play when integrating two organizations, ranging from cultural differences to operational efficiency.

How long is a typical M&A process?

How long does m&a due diligence take.

Depending on the scale and complexity of the deal, it might take anything from a few days to several months (typically 3 to 9 months). As such, it’s not something you can rush through.

M&A Milestones and Key Steps: Summary

M&a post-merger-integration, mergers, acquisitions, and the rising role of sustainability.

Environmental, Social, and Governance (ESG) is reshaping M&A, affecting deal valuation, investor demands, regulatory compliance, and integration strategies.

M&A Process Template 

In powerpoint and google slides format , free download: buy-side mergers & acquisitions process google slides template:.

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Merger And Acquisition Plan Template

What is a Merger And Acquisition Plan?

A merger and acquisition plan is a comprehensive document that outlines the steps necessary to successfully combine two or more organizations. It outlines objectives and actions, establishes performance targets, and outlines the process for integrating the two organizations. The plan also includes financial analysis and due diligence to ensure the merger or acquisition is a sound investment.

What's included in this Merger And Acquisition Plan template?

• 3 focus areas
• 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Merger And Acquisition Plan template for?

This Merger and Acquisition Plan Template is designed to be used by finance teams in organizations of all sizes and industries who are looking to create a successful merger and acquisition plan. It provides a detailed guide to help teams plan and execute a successful merger or acquisition.

1. Define clear examples of your focus areas

The focus areas of a merger and acquisition plan are the core topics or areas of activity for the plan. Examples of focus areas for a merger and acquisition plan include Merger and Acquisition, Financial Feasibility, and Integration. Each focus area should have its own set of objectives, actions, and performance targets to be successful.

2. Think about the objectives that could fall under that focus area

Objectives are the concrete goals that the plan is intended to accomplish. Objectives should be specific, measurable, and achievable. For example, under the Merger and Acquisition focus area, objectives could include Identify potential targets and Create a deal structure.

3. Set measurable targets (KPIs) to tackle the objective

Key performance indicators (KPIs) are the measurable targets that serve to gauge the success of an objective. KPIs should be relevant, realistic, and achievable. For example, under the objective Identify potential targets, a KPI could be Accurately identify potential targets. The KPI should have an initial value, target value, and a unit of measurement.

4. Implement related projects to achieve the KPIs

Projects, also known as actions, are the steps necessary to achieve the KPI. Projects should be specific, measurable, and achievable. For example, under the KPI Accurately identify potential targets, a project could be Conduct financial analysis and due diligence.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

Cascade is a strategy execution platform that helps teams create, track, and measure their strategies. Cascade allows teams to set objectives and KPIs, and track progress. With Cascade, teams can ensure their strategies are on track and quickly adjust their plans to ensure success.

M&A Strategies for Business Leaders to Drive Growth and Increase Profits

By Joe Weller | July 18, 2019 (updated July 26, 2021)

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You may know that mergers and acquisitions have the ability to fast-track your company’s growth, but also that most deals fail. Defy the odds with this complete guide to M&A strategy, in which veteran dealmakers show you how to spot and execute a winning transaction.

Included on this page, you'll find rationales of top-performing deals , negotiating secrets from top experts , details on how an issues sheet helps bridge M&A difference , as well as M&A case studies of tech giants , and many other helpful details on M&A strategies.

What Are Business M&A Strategies?

Mergers and acquisitions (M&A) strategy refers to the driving idea behind a deal. Companies’ and investors’ motivations determine the types of deals they pursue. Broadly speaking, the most common objectives of M&A fall into two main categories: improving financial performance and reducing risk.  

To understand business mergers and acquisitions strategies, you first need to know the two main buyer types, each of which seeks to acquire companies for different reasons:

Strategic buyers undertake mergers and acquisitions to further their own strategic objectives — acquiring products or expertise, expanding markets, or gaining customers. Strategic buyers are more likely to be other companies, and these deals are called strategic M&A.

Financial buyers are interested in performing M&A transactions for the purpose of financial return, such as increasing operating cash flow. These buyers may acquire a company with the intention of exiting at a later date, either by selling the company or listing it on the stock market with an initial public offering (IPO). These deals are called financial M&A , and some financial buyers are professional investors. 

Among these professional investors are private equity firms (PE firms), which seek to buy and hold companies for a cycle (often 10 years) before selling them at a profit. PE firms typically try to actively increase a company’s value so that they can maximize profits and may do so by installing people they choose as top executives. 

Venture capital firms are a subset of private equity firms that specifically target small, young companies that they believe have high growth potential. As such, venture capitalists court riskier acquisitions than do other private equity firms.

Strategic Rationales for M&A Decisions

Mergers and acquisitions are more successful when they achieve a valuable objective. Dealmakers refer to this objective as the transaction’s strategic rationale. 

Six strategic rationales underlie today’s top-performing deals:

• Improve a Company’s Performance: A company is acquired with the goals of streamlining to increase its value, slashing costs, improving growth in earnings per share, and widening profit margins.
• Consolidate to Remove Excess Capacity: A company absorbs another in its industry, so it can keep a check on production capacity and reduce it if necessary.
• Improve a Product’s Time to Market: A larger, more established company takes over a smaller one with a promising product. Smaller companies often lack the resources to quickly get their offering to market. IBM, for example, has purchased technology products from smaller companies and then used its vast sales force to increase its revenue; Procter & Gamble’s acquisition of Gillette was intended to improve their collective speed to market.
• Acquire Technologies, Expertise, Products, and Resources: A company buys a business because the acquisition costs less than it would to develop a technology, expertise, or product from scratch. Apple bought Siri for this purpose, and Cisco employed a similar strategy during the internet boom to rapidly expand its range of networking solutions. Companies such as Google and Facebook have made acquisitions to gain a target company’s expert key staff and intellectual property.  
• Exploit Economies of Scale in Specific Industries: A business leverages an opportunity to drastically lower operating costs by consolidating with another. For example, German automakers Volkswagen, Audi, and Porsche share some of their car platforms, so they can split the massive costs of developing new ones.
• Invest in Young Companies with Lots of Promise: A mature company acquires a young business because the established firm believes it can turn the upstart into a winner by investing resources and expertise. Johnson & Johnson did this with its purchase of the orthopedic device manufacturer DePuy, which then posted an annual growth rate of 17 percent over the next 12 years.

Some other strategic rationales have more mixed records of success:

• Roll Up Companies in Highly Fragmented Markets: A company buys lots of smaller operators in its same niche because there are too many small competitors for any of them to achieve economies of scale. Service Corporation, which runs funeral homes, began as a single business in Texas. It acquired 1,500 funeral homes and 400 cemeteries in 43 states because it knew how to share resources efficiently among these assets.
• Consolidate to Reduce Price Competition: An acquiring company believes that absorbing competitors will reduce price-cutting and give it more pricing leverage by increasing its market share. Doing this enables the company to get a better return on its invested capital.
• Consolidate to Reduce Capacity: A buyer believes that profitability will not improve until it eliminates an industry’s excess supply or production capacity. These deals are often predicated on plans to retool or close factories. 
• Accelerate Expansion: A buyer wants to expand its customer base and geographic markets and believes that an acquisition will achieve this more quickly than will organic growth. Sometimes, deals are motivated by an opportunity to cross-sell products — for example, a bank that buys an insurer hopes to sell both financial services and insurance to clients of both companies. 
• Transform a Business Entirely: Executives and shareholders plan for a unified company to move in a direction that is completely new for one or both of the merged businesses. For example, Novartis was formed by the merger of Ciba-Geigy and Sandoz, but constituted a completely new company with a new culture and way of doing things.
• Buy a Business at a Price Lower Than Its Intrinsic Value: A company makes an acquisition because it views the target as a genuine bargain. This is a financially driven deal rather than a strategic one and is often followed by asset sales. 
• Deploy Excess Cash: A company that has strong cash flow or is sitting on a lot of cash from a previous deal needs to put this money to work. Buyers in this category look for businesses that will help them continue to grow. In public companies, shareholders often exert pressure on the company to deploy excess cash in a way that achieves increased returns.
• Achieve Vertical Integration: A company makes a deal so it can control the production facilities, the raw materials, and, possibly, the distribution channels relating to its current business. For example, a manufacturer could achieve vertical integration by buying the supplier of its raw materials and its distribution network. The underlying rationale for this strategy is to reduce costs and increase market leverage.
• Reduce Tax Liability: So-called tax inversions occur when a company based in a higher-tax country buys another firm located in a lower-tax country and then restructures, so the acquiring company can become a subsidiary of the target. The objective is to pay a lower tax rate on corporate profits. Historically, U.S. and U.K. companies have sought inversions with Ireland as the preferred destination. These deals have become less common as regulatory and tax code changes have made them either less feasible or less profitable. Another tax motivation for M&A occurs when a target has unused tax losses and credits that the buyer can leverage.

Successful M&A Styles: Consistency Is Key

According to research in Harvard Business Review (HBR) , acquirers who buy more often have larger returns. The most successful are consistent buyers who make their purchases regularly throughout economic cycles.

Both strategic and financial investors want to know the hallmarks of successful mergers and acquisitions. Buyers want to buy low and sell high, but in an unpredictable environment, how do they give themselves the best chance of making smart purchases as often as possible? 

Reporting their findings in HBR , Bain & Co. analysts examined 7,475 deals made by 724 U.S. companies over a 15-year period and tried to discover the relationship between a company’s deal-making practices and its ability to deliver value to shareholders.

According to Bain & Co., there are several kinds of frequent buyers. Some buy consistently across boom and bust cycles. Some swoop in during recessions, while others try to pick smart purchases during periods of growth. And, some do neither, preferring to make their moves when the market hovers between bears and bulls.

The findings also showed that savvy dealmakers act a lot like cost-averaging investors in the stock market; these investors follow a systematic plan, investing a set amount at regular intervals and sticking to it through boom and bust, rather than trying to time the market. This style minimizes the risk of buying assets just before the market crashes and is supported by long-term trends for values to appreciate over the long run.

Of course, smart M&A decisions involve more than just timing.

What Makes a Company a Target for Acquisition?

To find out why companies become M&A targets, City University London’s Cass Business School examined nearly 34,000 businesses. For private companies, being large and highly leveraged are the most significant predictors of being acquired. For public companies, being small and having low profitability are most important. 

Private companies tend to become targets for acquisition when they’re big, growing quickly, and highly profitable, and when they have high leverage and low liquidity, according to the research. Public companies, on the other hand, become targets for acquisition while they’re small but fast growing and have low profitability, leverage, liquidity, and valuation. 

One of the interesting takeaways from the Cass study, however, is that while definite patterns are visible, there is no absolute consensus among buyers over the hallmarks of a good acquisition candidate. The attractiveness depends in large part on what the purchasing company wants to get from the target company and what the buyer thinks it can do with the acquisition.

Essential Elements in a Successful M&A

As you progress toward a merger or acquisition, keep in mind that successful deals share some essential characteristics, including sticking to a timeline, offering benefits for both sides, possessing a strategic vision, and having a backup plan. Check your proposed transaction against this list:

• Mutually Beneficial Deal: Both parties approaching an M&A stand to gain something, even if it is only avoiding a less preferable alternative. That means there will have to be some degree of compromise. If it looks like one company is gaining a lot more than it is giving up — or vice versa — then that should be a warning that one party may not be fully committed to the deal.
• Alignment with Future Plans: An M&A deal is a strategic endeavor, and that means negotiators must have a clear vision of how it will benefit both the acquiring and the selling company. Also, each side in the deal must have a clear view of what its organization will look like after the transaction is complete.
• Backup Plan: Even the best-laid plans can go awry, and that is doubly true when there is more than one party involved in negotiations. What happens when negotiations stall — or hit a dead end? Know your plan B so you can set your bottom line in the negotiations.
• Clear Timeline: The strategic goals for M&A deals are often time-based, but negotiations between large companies can stretch on for months or even years. Therefore, it is important to have a roadmap of milestones and deadlines, so the process stays on track.

What Are Mergers and Acquisitions?

Mergers and acquisitions are types of deals in which two companies combine their assets. Although the terms are sometimes used interchangeably, mergers and acquisitions are not technically the same. 

In a merger , two companies are combined. This may be a transaction among equals, but usually one side is bigger. The stronger company absorbs the purchased company, and the purchased company ceases to exist. 

In an acquisition , the acquiring company buys most or all of the purchased company. The acquired company may be absorbed or combined with other operations of the purchasing company, or the acquired company may operate as a standalone business under its original name.

Main Types of Mergers and Acquisitions

There are four main types of mergers and acquisitions: 

Horizontal Mergers and Acquisitions: These take place between companies occupying roughly the same industry niche — in other words, between direct competitors. The idea of a horizontal deal is simple: Buy out the competition and eliminate them.

Vertical Mergers and Acquisitions: These take place between companies occupying different positions in the same supply chain. The idea behind a vertical deal is for the acquiring company to improve its efficiency or quality or increase the number of products or services it can offer in one place.

Conglomerate Mergers: These are between companies with very little in common. The idea is for one company to realize a business opportunity or mitigate a business risk.

Concentric Mergers: These are between companies that offer different products to the same customer base. The idea is for the companies to pool resources and expertise in order to offer enhanced products or services in combination.

Another similar framework for M&A strategies is to classify deals by how closely aligned the target company is to your core area of business:

Synergistic: The target is close to your company’s area of core competency, and the opportunity to realize cost synergies is high.

Strategic: The target is not as close to your area of core competency, but offers revenue and growth opportunities. This could be a company that has similar products, but different customer markets.

Complementary: These opportunities offer little overlap with your current core business, and the synergies tend to be indirect.

Diversifying: These are deals in which the target has no overlap with your current business. Diversifying strategies are the most difficult to execute profitably and successfully.

U.S. Trends in M&A: Will Deal Volume and Values Continue to Rise

In the United States, M&A activity has trended higher in recent years, driven by tax reforms and an easing of business regulations. Almost 80 percent of respondents in Deloitte’s 2019 survey on M&A trends said they expect the number of closed M&A deals to grow in the next 12 months; half said they expect to see an increase in high-dollar M&A deals worth between $500 million and $10 billion. 

Acquisitions in the tech sector have often generated the most buzz, but traditional business expansions aimed at growing customer bases and diversifying offerings are expected to increase as well.

In addition to a more business-friendly taxation regime and regulatory environment, a few other factors are driving the increased volume of M&A activity. First, M&A activity correlates with company valuations, and given the stock market’s continued strong performance, acquiring companies have been more willing to pay premiums. 

Second, private equity firms (professional investment firms that buy stakes in private companies) have historically tended to buy, build, and sell in cycles. Many investment analysts believe that as the stock market continues to perform well, we are approaching the selling stage of one of these cycles in the early 2020s. The proceeds from these sales represent a large pool of money available for the next round of deal-making. 

Third, relatively low interest rates have kept investment returns on some assets low, and investors see M&A deals as an opportunity for higher returns. 

A fourth factor driving global M&A activity is the liberalization of economies in the developing world. U.S. buyers are looking for promising companies that could produce high returns.

Several M&A experts predict that valuations are unlikely to go higher, especially if credit tightens.

“There is plenty of money on the sidelines, but I don’t believe it will drive multiples higher in general. The one area in which it might push multiples up is add-on acquisitions. Acquirers are generally willing to pay a higher multiple for businesses where they believe they can achieve significant cost savings,” says Harve Light, Managing Director of financial advisory firm Conway MacKenzie .

Paul S. Klick, Senior Managing Director of investment bank The McLean Group , which advises on mergers and acquisitions, says valuations have likely peaked: “It is hard to argue that things will grow and expand from here, so I think the real question should be, ‘Can we maintain ranges close to these highs?’… I do think the valuation ranges will continue into the next year at close to the current levels. I do not see a whole lot of movement in them continuing to expand,” Klick concludes.

How to Spot the Best M&A Opportunities

As deal valuations and volumes have risen in recent years, would-be buyers often feel that opportunities are diminishing for mergers and acquisitions that offer good value. Certainly, many dealmakers are having to search longer and more carefully.

Companies often enlist investment banks to advise them on mergers and acquisitions because these firms have expertise in valuing, financing, and finalizing deals. The right investment bank for your needs generally depends on how big your transaction is and how frequently you are pursuing deals. Bulge bracket investment banks are global firms that typically serve the largest companies. Boutique banks offer more specialized service, and there are investment banks that focus on middle market deals.

Economists generally believe a strong level of M&A is likely to continue because a lot of money is sitting on the sidelines. This money takes the form of cash on balance sheets, liquidity in investment funds that needs to be deployed, and profits realized from previous deals. Pressure to achieve superior returns on this money stokes interest in M&A, especially when interest rates are low and returns on investments such as bonds are less rewarding.

So, to spot strong opportunities for M&A, you need a structured and disciplined process, experts say. They offer the following advice:

• Be Proactive: Deal opportunities that fall into your lap (often described as opportunistic) or are suggested by the seller (called reactive ) are less likely to offer potential for superior returns. In the case of a seller-initiated opportunity, the seller is probably offering this deal to multiple potential buyers. This scenario usually weakens the buyer’s negotiating stance, and you’d be wise to question why another buyer has not snapped up the opportunity before now if the deal truly offers value.
• Have a Strategic Process: Bringing strategy and discipline to your M&A search process increases your likelihood of success. 

Following are the steps in a strategic search process:

• Define Your Strategy: What is the strategic rationale for your deal? You’ll also want to set parameters, such as what product or service the target should offer, the maximum deal size, and the desired revenue and profitability of the target company. 
• Validate Your Investment Criteria: Search to see how many companies fit your parameters by identifying potential targets through online searches, industry databases, and trade associations. If your search turns up a significant number of potential candidates (say 25 or more), then you have scope for an M&A program. 
• Screen and Prioritize Potential Targets: Do more detailed research on the targets you identified and rank them in order of priority. 
• Reach Out to Targets: Reach out to the target companies’ leaders or enlist an investment banker to do so. Assess their receptiveness to a deal and seek access to confidential information to make sure your deal strategy is viable.
• Manage a Funnel of Potential Deals: Nurture your prospects and track where each of them stand. As with a sales funnel, the number of targets that progress through each stage will decrease. If you are serious about M&A, you’ll want to have a healthy number of targets in each stage.

How to Evaluate an M&A Opportunity

There are four aspects that a buyer must consider when evaluating an M&A opportunity: the financial value of the target; the value of the assets to the buyer; the resale value of the target; and the strategic impact of the acquisition upon the buyer.

• Financial Value of the Target: The financial value of a target is the value, real and perceived, of a target company and its assets – put simply, what a company is worth. Of course, the financial value of a target may be less or more than a buyer is willing to pay for it.
• Value of the Assets to the Buyer: This is a related concept, but more subjective than the financial value because buyers can differ significantly in their valuation of assets. For example, suppose a car company that lacks a pickup truck in its model lineup has an opportunity to buy another vehicle manufacturer with a very popular pickup truck. This acquirer might value much more highly the opportunity to add an already successful pickup to its product line than would another company that already has its own pickup.
• Resale Value of the Target: This is simply what a buyer thinks they can get when they resell their new asset. The buyer will weight this value differently depending on the strategic rationale for their original purchase: Are they looking to sell off assets or break up the company? Or, are they only considering resale as a contingency plan?
• Strategic Impact: Of the four aspects, this is the most complex to evaluate because these effects usually involve multiple areas, such as market share, supply, distribution, technology, and human resources. 

These evaluations are based on assumptions and subject to change. The competitive landscape continues to evolve as the deal is explored. A prized technology may fall out of favor, or new regulations may pull the rug out from under a geographic expansion plan. 

The evaluation process begins with looking at the target’s fundamentals. These include the following: 

• Style and quality of management 
• Size and market share
• Capital structure
• Current and expected profitability 

The buyer also needs to consider what it is willing to pay, how it is going to pay this price, and what risks the purchase entails. 

An emerging area of risk in M&A is cyber liabilities — i.e., when a company discovers data breaches and hacking theft. An acquirer may discover that a breach occurred years before an acquisition; still, that buyer assumes the liabilities in terms of stolen money and consumers’ compromised data claims. For example, when Verizon acquired Yahoo in 2017, data breaches that came to light after the press announced the deal prompted Verizon to reduce the purchase price by seven percent. 

All this is to say that due diligence is important. The cornerstone is to assess the financial health of the target by examining several metrics, including the following:

• Growth: Assess this using a metric like the target company’s three-year compound annual growth rate (CAGR) in sales.
• Profitability: Measure this using the ratio of EBITDA to sales. EBITDA, which stands for earnings before interest, tax, depreciation, and amortization, is a measure of operating performance that is not affected by financing, accounting decisions, or tax liabilities. A high EBITDA-to-revenue ratio indicates greater profitability.
• Leverage: Express this as the ratio of debt to EBITDA.
• Size: This refers to revenue or unit sales.
• Liquidity: Measure this by the ratio of current assets to current liabilities, which should ideally be higher than one.
• Valuation: Many metrics cover valuation, including stock price-to-earnings ratio and stock market capitalization. Free cash flow and discounted future cash flow also indicate the profitability of a business. 
• Asset Value: Express this as book value , which is total assets minus intangible assets. This equals the carrying value on the balance sheet and is an indicator of the liquidation value of a company. By comparing stock price to book value, you can get a sense of whether or not a company’s market valuation is fair.  

Lastly, companies that are looking to buy and sell at a profit in 10 years must ask whether there is an opportunity to create value that would allow them to turn a profit. These companies tend to buy at fair market prices rather than at discounts, which means they need to find a way to create additional value by increasing revenue or eliminating competition.

To evaluate this potential, consider the landscape that your target faces. Is the proposed acquisition in a good business with a manageable competitive environment? 

Be sure to consider the long term, too. If the target’s industry was to undergo a complete transformation, what do you speculate would be the source of the change, and how do you anticipate the target would fare? If a new business model, technology, or demand shift was to create potential for disruption, would you as an acquirer be well positioned to successfully lead the target amid either upside or downside risk? 

Many M&A scenarios anticipate a continuation of the status quo, but this kind of proactive evaluation is important for identifying less obvious risks. Of course, the remote possibility of a negative event should not deter an M&A that is otherwise sound. This process offers valuable stress testing.

What Are the Alternatives to Mergers And Acquisitions?

After carefully evaluating a deal, you may discover that a merger or acquisition may not be possible or may not represent the best choice. For either a buyer or seller, another action, such as an alliance, joint venture, or franchise, may do more to achieve the strategic rationale.

For example, if you find that the number of targets that meet your acquisition criteria is very small and that none is available for sale right now, your best strategy may be to work on building relationships with that handful of companies and positioning yourself so that you are the favored purchaser when they do become willing to sell. 

In another trend that is becoming more common, companies that traditionally would have divested assets or business interests now sometimes want to retain an interest in the business, hoping to participate in the upside potential they believe the asset offers. So, instead of opting for a straight sale or spinoff, these companies are exploring alternatives, such as joint ventures, alliances, and franchising.

In a joint venture , two or more companies work together to realize a business opportunity or tackle a business risk. Each company contributes assets or funding and each holds a share of potential losses and returns. Usually, the joint venture involves creating a new business entity. In an alliance , the idea is similar to a joint venture: joining forces to address a specific issue. However, in an alliance, the participants limit the scope of collaboration more narrowly, and they do not set up a new entity.

In a franchise , a business licenses its assets and expertise to a third party for a fee in order to make a profit.

The Lifecycle of an M&A Deal

An M&A deal can be a long time in the making, stretching months or years from conception to execution. In that time, the deal will move through a number of stages and milestones. Here are the typical milestones in a merger or acquisition; also check out our complete guide to M&A processes for a more in-depth discussion. 

• Identification of Opportunity: An M&A deal begins when an acquiring company decides that it has a strategic rationale to make an acquisition — or, less often, when a would-be seller decides they need to divest.
• Negotiations: Negotiations begin once an acquiring company has reached a ballpark valuation for its purchase. The negotiations culminate with the preparation of a letter of intent (LOI) in which the parties state their agreed-upon terms. 
• Due Diligence: The acquirer conducts an exhaustive examination of the financial and operational health of the company it wants to purchase, a process called doing its due diligence . Assuming that due diligence doesn’t turn up any problems, the two companies sign a definitive contract.  
• Preparation for Day 1: Purchasers must lay a lot of groundwork for the first day that the new business combination is active, called Day 1 in M&A jargon. Some integration steps may take place over weeks or months, but leaders have to make some decisions right away, such as who will be in charge of the acquired organization. Among the detailed questions they must answer are these: Will you merge systems (such as IT at the purchased unit) with those of the buyer, or will you eliminate them? How will you define and transmit the organizational culture?  
• What to Do on Day 1: The first official day offers management an important opportunity to set the right tone. You may want to plan events and training that explain how the new structure will function and calm any jitters among staff resulting from organizational change. Some buyers choose to hold a celebration or special day with speeches, town hall meetings, and refreshments. You will be making a first impression on the staff of the acquired company and will want to put your best foot forward, including minimizing glitches and snafus that may arise from the combined administration, systems, and networks.  
• Integration: The first one hundred days are a time of intense focus on integration. But, full integration can sometimes take years. Some M&A experts place extra importance on the integration of IT, given how crucial data and networks are to all businesses. These pros generally recommend that you do not take on multiple new projects until information systems are solid. A little later we will cover the main IT integration strategies that you use in mergers and acquisitions. 
• Installation of New Leadership: Acquiring companies often want to install new leaders in purchased units under the belief that fresh executives will be more enthusiastic about carrying out a new game plan and more loyal to the new owner than legacy leaders. Buyers must also prepare for the potential attrition and loss of star performers in the target company. Research dating back three decades shows that turnover among senior management rises at a merged company, with a quarter of top executives leaving within the first year and more than half leaving within the first five years.

Secrets of Successful M&A Negotiators

The strategic rationale for a deal often depends on executing it at certain terms, short of which the merger or acquisition may not be profitable. Of course, buyers always want to pay as little as possible, and sellers want to reap as much as possible. So, being a strong negotiator is critical to achieving your best outcome.  

“No transaction is the same, no client is the same, and no M&A process is the same. Recognizing this reality at the outset is paramount and limits any idea of patterns or techniques that can be predictive of success,” says Klick of The McLean Group. He continues, “From my experience, the best M&A negotiators are those who spend the time to work closely with their clients. They understand the nuances of a client’s business, the competitive landscape, and industry issues.” 

As a formal field of study, negotiation theory is relatively young, but research has proliferated over the last three decades. Negotiation is a decision-making process that allows people with competing objectives to agree upon the allocation of resources. Expert M&A negotiators stress four things:

• Preparation is critical.
• Understand the role of irrationality in decision making.
• Be aware of the common thought traps that can lead you to agreeing to a bad deal or abandoning a good one.
• Recognize how timing and deal phase change leverage in negotiations.

Prepare Meticulously for Deal Negotiations

M&A pros say the most important part of your negotiation happens before you even reach the bargaining stage. 

First, do a thorough analysis of your counterpart and prepare an exacting valuation of the target, whether you are a buyer or a seller. This will enable you to establish some important parameters:

• Your Best Alternative to a Negotiated Agreement (BATNA): This lays out what you do if you are unable to reach an agreement.
• Reservation Value: This is the least favorable price at which you would do a deal. For buyers, this is the maximum that they would pay; for sellers, it’s the minimum that they would accept.
• Zone of Possible Agreement (ZOPA): This is the range that is acceptable to both sides. This area lies between the two parties’ reservation values. 

Moreover, assess the strengths, weaknesses, opportunities, and threats for both buyer and seller. Understand how important it is to your counterpart to reach a deal. Is the seller strapped for cash? Is the buyer under pressure from activist shareholders to put excess cash to good work?

Do your homework on the individuals you are negotiating against. What is their reputation? What have they done in past negotiations? For example, if your counterpart is very sensitive to losing face, you may want to discuss delicate issues one on one rather than in a room full of people. 

Your careful financial analysis of the deal will give you a strong justification for your opening bid, reservation price, and ZOPA and act as a check on succumbing to psychological manipulation.

Understand the Role of Irrationality in Negotiations

Historically, researchers who studied deal-making practices operated under the assumption that people were fully rational when they negotiated and made economic decisions. So, decision-making tools were built upon this assumption.

In the 1970s, however, the glaring reality that people often make irrational economic decisions forced researchers to abandon the assumption of full rationality and adopt a new one. In 1981, Roger Fisher and William Ury of the Harvard Negotiation Project published Getting to Yes , a book that became the new gospel for negotiators. In it, the authors argue that while most people think of themselves as reasonable, there is always part of a negotiation that is emotional or irrational. They suggested dealing with this phenomenon by using a method called “principled negotiation” in which the two sides seek mutual gains. So, the buyer and seller look for ways to work together in order to increase value for both parties.

Around the same time, Daniel Kahneman and Amos Tversky at the University of Chicago came up with a new theory. They posited that humans were primarily irrational, rather than rational, and relied on cognitive shortcuts, heuristics, and outright fallacies when making decisions. Kahneman and Tversky, in their bestselling book Thinking Fast and Slow , suggested that humans did have the capacity to make rational decisions via thought processes that the authors termed “System 2;” they noted, however, that System 2 was usually subordinate to the impulsive, irrational “System 1” processes.

So-called cognitive bias often leads to subtle errors in thinking that interfere with rational decision making. Because we have limited resources (of time, energy, or attention), the brain takes shortcuts to simplify its task. Among these shortcuts are such things as confirmation bias , i.e., the tendency to favor information that reinforces your existing beliefs, and anchoring bias , which is when you tend to put too much weight on the first piece of information you learn.

Successful M&A negotiators understand how they can turn System 1 thinking to their advantage. According to the System framework, stakeholders in M&A negotiations are, at heart, irrational, which means they can be nudged toward decisions that aren’t always in their absolute best interests.

Common Traps in Deal Decisions

Despite best intentions, negotiators can fall victim to traps that lead to poor M&A decisions. The agreement trap occurs when you agree to a deal that is worse than your BATNA. This may happen inadvertently if the other party withholds information, is dishonest, or succeeds in convincing you that the deal is better than it really is.

Human reluctance to walk away from a deal because you have invested a lot of time, expense, and energy in the negotiations can propel you into the agreement trap. The sunk cost fallacy refers to the phenomenon in which we are biased to avoid losses. 

Moreover, you can find yourself in the agreement trap because you may be so invested in the relationship with the counterparty and your desire to succeed that you do not recognize that walking away is the better decision.

Another error of thinking, called the mythical fixed pie of negotiation, leads negotiators to abandon deals that are better than their alternatives. This fallacy is driven by the belief that there is a fixed amount of resources, making deals either wins or losses. 

In reality, there are many variables (beyond price) at work in a deal. These can include timing, financing, contractual clauses (such as non-competes), and future relationships. Ideally, negotiators should see that they can make tradeoffs among a variety of issues — giving concessions where they can while sticking to hard boundaries where they can’t — and reach compromise rather than killing a deal.

Recognize How Timing and Phase Change Leverage in Negotiations

The strength of your negotiating position isn’t static; your influence varies over time. Sellers have the most leverage early in the M&A deal process, while buyers’ leverage increases the closer a deal comes to a final contract. 

This makes sense when you consider that during the early phases, the seller may have multiple interested suitors. The potential buyer has to make its strongest case and beat out the competition to get the seller to sign a letter of intent. 

Once the seller has executed the LOI, they are then (usually) negotiating exclusively with just one buyer, and leverage begins to shift to the acquirer. The seller may begin to worry about news leaks of an impending deal and fear that key employees may leave and that large customers may look for an alternative supplier. So, the seller faces time pressure to consummate a deal. 

In addition, the seller may be emotionally invested by this stage if its leaders have plans for how the company will use money from the sale, if owners or executives get financial rewards for selling, or if any of these stakeholders have already imagined themselves moving on or retiring.

Resolving Thorny Issues in M&A Negotiations

M&A negotiations can be high-pressure situations, and some brinkmanship is likely. To facilitate an agreement, develop an issues list. This document lays out thorny issues, the positions of the two sides, and suggested compromises or final resolution. Making this list gives you a clear idea of the obstacles, provides a framework for discussing disagreements, and removes some of the heat from negotiations.

Strategies Used to Defend Against a Corporate Takeover Attempt

Not all targets are open to acquisition. Sometimes, when the target has rebuffed a buyer, that buyer will attempt a hostile takeover, trying to convince their company’s shareholders to back the proposed deal or simply buy enough shares in the open market to win the target. So, target companies that aren’t interested in acquisition have developed strategies to repel hostile takeover bids.

The staggered board defense involves appointing members to the board of directors in a staggered fashion and, thus, composing a board with varying tenures: say, some with two years and others with four. By staggering tenures, it will take years for company leaders to roll over a currently opposing board into a more acquiescent one, and that’s too long for many buyers.

The supermajority means requiring a large majority of shareholders, such as 80 percent, to approve a takeover, which makes it harder for a would-be buyer to acquire a controlling interest. 

A fair price amendment bars a buyer from offering different prices to different stockholders. Another alternative is issuing dual stock classes so that shareholders can buy stock that does not carry voting rights.

A poison pill is a kamikaze tactic wherein the target company harms itself should it be acquired. Variations on the poison pill defense include higher management doing the following: threatening to quit, selling a prized asset to a competitor of the acquiring company, or offering company stock at a discount if a buyer gets a significant minority of shares. 

A white knight is a compromise in which a target company agrees to an acquisition by a buyer that it prefers — a so-called white knight — in order to avoid a hostile deal with another buyer. 

Lastly, taking on lots of debt or issuing junk bonds that reach maturity when your company is acquired can make a purchase prohibitively expensive

Case Studies of M&A Business Strategy at Tech Giants

The technology sector has been a hotbed for M&A, and Silicon Valley’s giants offer case studies in different M&A styles. 

• Google: This multinational behemoth has acquired over 230 companies at a total price of tens of billions of dollars. The company’s philosophy is to try fast and fail fast. Google, a subsidiary of Alphabet Inc., buys lots of companies, sticks with the ones that work, and quickly ditches those that do not. Google’s acquisition strategy prioritizes gaining key staff and innovative technologies that it will develop. Often, when the tech giant acquires a company, that company is absorbed and does not continue as a distinct entity. Google looks for acquisitions that fit its core business of information access.
• Facebook: Conscious of how fickle social media users tend to be and what happened to MySpace and Orkut, Facebook seeks to snap up promising competitors. The two prime examples of this strategy are Instagram and WhatsApp. Facebook targets competitors that have already reached a critical mass. Because of this strategy (i.e., buying proven concepts), the company pays more than it would for development-stage offerings. For example, the company paid about $19.3 billion for WhatsApp in 2014. 
• Microsoft: For much of its history, Microsoft had a lackluster track record of finding and executing deals that enabled the company to expand on its dominance as a software provider. The firm has made more than 200 acquisitions, but has missed out on some paradigm-shifting advancements in the cloud, on mobile, and in social spaces, such as multimedia sharing. More recently under CEO Satya Nadella, however, the company seems to have strengthened its strategy and has pursued deals in the cloud and on mobile.
• Oracle: This company may not be as well known as Google, Facebook, or Microsoft because its customers are enterprises rather than consumers, but the company has always had a big appetite for acquisitions in the cloud and SaaS spaces. Oracle’s purchases have been aimed at maintaining its dominance in cloud-based enterprise solutions and, more recently, at extracting more revenue from its customer base by investing in new vertical offerings.
• SAP: Like Oracle, this company makes acquisitions to protect and expand its position as an enterprise solutions provider. SAP seeks to integrate acquisitions into its existing businesses, and its purchases of cloud-based services have resulted in increased revenue from the cloud sector. One of SAP’s most famous recent acquisitions is the late-2018 purchase of Qualtrics, which specializes in tracking customer sentiment online.
• Apple: The world’s most profitable public company implements its acquisitions strategy largely under the radar, making a very small number of deals and quickly bolting the acquired technologies on to its own offerings. Apple uses this approach because it already has a hugely successful but small product line and is reluctant to significantly alter the Apple customer experience. The iPhone producer makes exceptions only for incremental technologies that the company is absolutely sure will improve its own products and services. So, when Apple buys, it buys small and usually shuts down the acquired business after it has gotten the tech it wants.
• IBM: An early tech giant that fought to keep itself relevant, IBM has invested heavily in cloud infrastructure and SaaS acquisitions; the company has experienced significant revenue growth in both these areas. Big Blue considers its $34 billion acquisition of open source cloud software provider Red Hat (announced in 2018) to be a game changer that will make IBM the top hybrid cloud provider. 
• Salesforce: This company has consistently made acquisitions, notably the $6.5 billion purchase of integration software Mulesoft, with the aim of developing its software ecosystem for B2B cloud software. Other acquisitions strengthened its sales software by adding functionality, such as email, document sharing, and social media marketing. Salesforce targets vary in size, but observers have predicted that the company’s strong organic growth will minimize its reliance on major purchases.
• Twitter: The company has tended to buy small, spending significantly under $500 million per deal, in a reflection of its own youth and moderate size. Twitter has focused on purchases that add new functionalities to its platform. Unlike Salesforce, however, Twitter needs to make more purchases in order to grow (according to the experts). Nevertheless, the social media company has focused on the Twitter platform itself, rather than on platform extensions (as Facebook has done).

How M&A Affects Industries: Convergence, Consolidation in Healthcare, Etc.

Mergers and acquisitions can reshape industries, so let’s look at how these trends have played out in a few key spaces.

Healthcare M&A Trends

The U.S. government has blocked some horizontal M&As on antitrust grounds, notably barring local or regional hospital mergers that regulators believe would have anti-competitive effects. But, the government has supported other horizontal deals as well as vertical deals. 

For example, physician practice groups, pharmacy benefit managers, and hospitals in major urban areas have experienced a high degree of concentration. Private equity firms have aggressively been acquiring physician practices and putting them under joint control, according to a study in the Annals of Internal Medicine . Private equity firms acquired an estimated 102 physician practices in 2017. The Physicians Advocacy Institute and consultants Avalere Health say that hospitals acquired a further 8,000 doctor practices from 2016 to 2018. 

A notable vertical mega-deal in healthcare was drugstore chain CVS Health’s $70 billion acquisition of health insurer Aetna in 2018. Other vertical combinations have included the $67 billion merger of insurer Cigna and pharmacy benefit manager Express Scripts. Healthcare company UnitedHealth has announced the acquisition of DaVita Medical Group, which operates 300 medical clinics. Similarly, health systems that operate hospitals, primary care practices, and specialty clinics have begun offering health insurance plans and their own drug supply networks. 

The motivation for M&A in healthcare has been to lower costs and increase coordination of patient care via consolidation that generates efficiencies. However, multiple research studies have shown that efficiencies have generally not been as big as expected and that savings have not been passed on to consumers. U.S. healthcare costs continue to rise faster than in other countries, and increased concentration has translated into less competition and more pricing leverage for providers.

Banking M&A Trends

Meanwhile, consolidation in banking has promised similar benefits — increased operational efficiencies and a broadened scope of operations and services. Increased size through acquisitions and mergers may also benefit consumers because bigger banks are much less likely to fail. 

The banking sector features a high degree of differentiation among competitors on the basis of customer service. Customers place a lot of weight on their trust in and relationships with financial service providers. Acquisitions and mergers can undermine both of these if culture shifts, policies and products change, jobs disappear, and staff assignments to customers alter. 

Light says that two trends are driving M&A in financial services: “Regulated banks are looking for technology companies that will enhance their payment systems. Non-regulated institutions, such as finance companies, are looking for targets (other finance companies) that will help them build a critical mass.”

Technology M&A Trends

The technology sector has generated a lot of publicity — much of it negative — about how consolidation enables tech companies to acquire personal information from disparate sources and connect data points in order to build out highly detailed user profiles. Consumers worry about their privacy.

On the plus side, M&A has helped drive innovation in the tech sector. Growth in venture capital funds has made much more money available to fund the development of promising new technologies, and deep-pocketed acquirers are bringing innovations to market much more quickly and effectively than some startups could.

Head of The McLean Group’s technology and telecommunications practice, Klick anticipates cyber security will continue to generate deals: “The cyber sector in and of itself has had tremendous volume in M&A activity. I expect it to continue to be one of the highest volume areas for years to come.” Klick notes that “This is because of the prevalence of technology solutions out there, from a doorbell provider to large enterprise solutions. Our lives become more and more digital on a daily basis, and each solution opens the door to a new threat. Protecting our information and privacy remains the paramount issue for all companies.”

Best Practices for Successful M&A Deals

Research consistently finds that the majority of M&A deals fail to deliver: Sixty percent to 83 percent, according to data from Harvard Business Review and KPMG, fail to increase shareholder returns, and a large proportion of these deals actually destroy shareholder value. Only 14 percent of respondents in a recent Grant Thornton study say that M&A deals surpass their expectations for increased income or rate of returns. 

Several factors influence the success of an M&A, and the buyer has little or no control over some of them. Think of interest rate fluctuations, changes in business regulations, new global trade and investment policies, increased taxes, skewed stock market valuations, political instability, or just the boom and bust of economic cycles.

Nevertheless, many companies overcome these challenges and use M&As strategically to drive growth. These winners control what they can by being smart about selecting, negotiating, and managing their M&As. Here are some best practices commonly used by M&A leaders:

• Create a Dedicated M&A Team: Many moving pieces must come together for a deal to succeed. The best practice to manage and optimize with these variables is to establish a team that deals specifically with M&As; this is especially important if deals are a regular occurrence for your company. 
• Maintain Discipline in Target Selection: Stick closely to the target criteria you defined in your M&A process, such as alignment with your strategic objectives and benchmarks for financial performance. Doing this vastly reduces the likelihood of pursuing deals that prove to be a bad fit or developing irrational enthusiasm for a deal.
• Seek Quality: Pros say that strategic buyers should prioritize the potential for synergies and the strength of the target business. While great deals occasionally come along, you must nurture acquisitions; as Warren Buffett advises, over the long term, it’s much better to buy wonderful companies at fair prices than to buy fair companies at wonderful prices. Pick winners and back them to help them grow.
• Use Technology to Manage M&As: Companies that are strong in M&A work hard to minimize risk, and they know that winning a deal can hinge on a slim information advantage or careful due diligence. So, these top acquirers leverage technology to optimize their deal process. Applications manage key M&A steps, such as financial analysis, virtual data rooms, post-deal integration, and pipeline management, and general project management tools can make sure nothing slips through the cracks.  A new generation of tools based on artificial intelligence is expanding the range of capabilities by providing more insight and analysis into industry relationships, competitor activity, and investment patterns. These AI solutions use analytics on data streams to prioritize investments, manage transactions throughout the lifecycle, and speed up regulatory compliance. Additionally, templates can often help you define your strategy at the outset, as well as stick to plan down the road. To get started, check out our complete guide to M&A templates , all of which are free to download.
• Makeup and management style of leadership team 
• Customer relationship style 
• Mission and goals 
• Degree of internal alignment 
• Agility and adaptability 

Many corporate leaders have trouble talking about culture in concrete terms, which is not surprising given how subjective it is. Organizational researchers have created some paradigms to help. Consultant and Pepperdine University Visiting Professor Kent Rhodes coined the “Seven Ms” of organizational culture, borrowing terms from several different disciplines to describe the pillars of corporate culture:  

• Metallurgy: This is the culture that surrounds the organization’s approach to everyday work.
• Mythology: This is the story of the organization, which may be a narrative of greatness or a tale of tragedy.
• Missiology: This refers to how existing employees bring new recruits into the fold — or block them out.
• Meritocracy: This is the awarding of opportunities and rewards based on contribution and ability.
• Modality: This refers to the method of approaching organizational problems. 
• Mores: These are the moral and ethical standards that undergird the company’s work.
• Mettle: This refers to the spirit or strength of character of both the individual and the team.

For a merger or an acquisition, use these Seven M’s to evaluate how compatible the two organizations are. When there’s a lack of fit between company cultures, even a merger that seems perfect on paper can generate friction between employees at all levels.

“The M&A deal process is like the dating game: Even initial strong chemistry is not an indication of long-term success or what will make for a good marriage,” says Jennifer J. Fondrevay , Chief Humanity Officer of Day 1 Ready M&A consultancy. “More important than that initial ‘perfect chemistry’ is having genuine respect for what the other company brings to the table and an understanding that the respect is mutual,” she explains.

• Focus on the Staff: Staff at both the acquiring and acquired companies may have fears about what the deal will mean for them. Will there be job losses, changes in roles and responsibilities, or new ways of doing things that make their jobs harder? These worries can hurt company performance by sapping morale and productivity, motivating key staff to job hunt and reducing support for new strategic plans. You can mitigate these effects with clear communication and a performance management system that recognizes desired behavior.
• Remember, Sometimes It Just Won’t Work: Some deals will fail, regardless of what you do. That’s why smart dealmakers play the percentages and try to make many good deals instead of a few great ones.

IT Integration Strategies for M&A

Managing the combined information systems of newly merged or acquired companies is a top priority. To realize the strategic rationale underlying an M&A, you need to be able to quantify, measure, and track assets and performance. Following transactions, there are some common IT integration strategies:

• Minimal Integration: Especially when a newly acquired company is going to continue to run as a largely independent unit, it may make sense to integrate IT systems to the least extent possible, while still being able to generate the data you need.
• Favored Child: In this approach, you expand the best IT system (from either the acquirer or the acquired company) to cover the entire company.
• Patchwork: Use the strongest assets and systems from both companies and combine them. 
• Scratch: Build a new IT structure that serves the new entity from the ground up.
• Outsource: Assign a contractor to build, manage, and support the necessary IT infrastructure.

Why Do Merger and Acquisition Deals Fail?

What do we mean when we say a merger or an acquisition has failed? The benchmark for success is whether an M&A meets the deal’s initial strategic rationale, so success will vary depending on your objective. But generally, acquirers expect a purchase to bring long-term operational and financial gains that exceed the price they paid. 

M&As can go wrong for a number of reasons. Research from Bain & Co. suggests poor cultural fit may be the primary one. When cultures clash, everyone is on edge. Then, there are the intertwined problems of a lack of differentiation between the merged companies, a dilution of brand strength, and the resulting confusion among customers. M&As carry a major risk: A company can lose what originally made it special.

Poor leadership and mishandling of the integration phase can aggravate these challenges. Light of Conway MacKenzie says that the most common reasons for failure are incomplete due diligence, overvalued cost savings, and lack of complete integration strategies.

Acquirers can overlook critical operating areas during their due diligence process. “One example is an insufficient review and understanding of work in process and what really needs to be done to convert WIP to finished products,” Light explains. “Another example is a shallow understanding of future work that has been awarded. Take an auto supplier that has been awarded parts for a new vehicle launch. You must complete a deep review of capital expenditures, launch costs, and forecasted volumes,” she says.

Similarly, buyers are often overly optimistic in forecasting cost savings that they can reap from an acquired company. Beyond administrative efficiencies, which are relatively straightforward, it is challenging to predict other types of savings. “Operational/manufacturing cost savings are typically overstated due to unforeseen complexities in plant integration,” Light concludes.

Moreover, acquirers frequently do not build enough time or cost into integration plans, especially for technology integration, where extensive data cleaning may be necessary to combine systems, Light says.

Managing Marketing and Communications in Mergers and Acquisitions

A critical but often underappreciated element of merger and acquisition strategy is communications, both internal and external. Effective communication can forestall opposition to a transaction, keep clients from defecting, reassure employees, and minimize public backlash. 

Specialist public relations firms focus on communication during mergers and acquisitions and can be a helpful addition during a deal. Following are the major categories of communication relevant to mergers and acquisitions:

• Marketing and Branding: Names and positioning of surviving companies and products 
• Media Relations: Press releases and outreach to key outlets, including local, national, and industry-specific media
• Investor Relations: Presentations, deal documentation, and messaging with important shareholders and financial analysts 
• Sales Support and Supplier Relations: Outreach and information to clients and suppliers concerning how the changes will affect the way they do business with you, including anticipated changes in account teams, pricing, distribution, and more 
• Government and Community Relations: Shepherding the deal through regulatory reviews and informing affected local communities as well as providing information about the deal to stakeholders like neighborhood associations, trade groups, unions, and environmental groups 
• Internal Communications: Explaining the deal to staff, including job cuts or reassignments, changes to company strategy and benefits, timeline, new leadership, and other details

Establish a cross-functional team that can take charge of M&A-related communications. A team might bring in HR, finance, sales, procurement, and other departments, depending on the stakeholders. Ask the team to brainstorm likely concerns and objections that the deal will face — and formulate responses. Then, draft a campaign to carry out your messaging, including press releases, social media, advertising, speeches, and information sessions, using proxy advisory services and printed collateral. 

Here are some of the concerns that often arise:

• External: Will this affect customer service? What will be the name of the new company? Is management changing? Which company is in control? Will prices go up? Who is my point of contact now? Will the company be cutting jobs or closing locations? What will be the impact on nearby communities? 
• Internal: How do I explain the deal to customers? What is the new hierarchy? Will we get new sales collateral? How will this affect my job? Who will I report to? Will there be cost cutting or job reductions? 

Fondrevay emphasizes that “Content and timing are tricky and can have legal consequences: Who do you tell what information and when, and what do you say?”

“By taking the time to anticipate people’s reactions and expectations and focusing on the communication strategy in the M&A deal pre-planning, this upfront effort can go a long way toward setting up the deal for success,” she explains.

Based on interviews with 60 executives, Fondrevay’s book about how to optimize the human side of M&A sheds light on the process: “One of the key lessons learned was about how the vision behind the merger or acquisition is communicated to stakeholders right at the beginning: People need to see themselves contributing to the vision.” She recommends some guiding principles for M&A communication:   

• Don’t “sell the vision” like it is a product. 
• Do sell the vision through story — bring the company journey to life.
• Don’t make promises (you likely can’t keep).
• Don’t hand off your talking points to an outside consulting firm; authenticity is key.
• Do have a third party help you define your communication strategy, so you are prepared for every question and conversation; consistency of message is critical.

Important Terms to Know in Mergers and Acquisitions Strategy

Understanding mergers and acquisitions requires becoming familiar with the terminology. Some terms are commonplace in business news, such as hostile takeover, but others are more obscure.

• Acqui-Hire: An acquisition that is carried out so the acquirer can obtain the target company’s talent
• Acquirer: A company that is pursuing the acquisition of another
• Acquisition: The purchase of a complete or controlling interest in one company by another. The buyer is typically the larger of the two companies. In an acquisition, the buyer’s brand and identity usually remain largely unchanged, while the purchased company’s brand and identity may disappear. Acquisitions may be either friendly or hostile.
• Arm’s Length Deal: A transaction in which both sides act independently in their own best interests without any coercion or collusion. In arm’s length deals, the participants usually have no ties. In contrast, deals among relatives or companies with common shareholders usually have many ties. 
• Boom and Bust: Cyclical periods of economic growth and recession
• Buy or No Buy: The make-or-break characteristics of a deal from the purchaser’s perspective
• Capacity: The ability to do something; in business, typically the ability to produce
• Capital at Risk: A representation of the greatest possible loss that could occur (usually) within a specific period of time
• Conglomerate Deal: When an acquirer purchases a target in a different industry
• Consolidated Merger: A merger that dissolves both participating companies in order to form a new legal entity
• Cost Synergy: When two companies are able to reduce costs to a greater extent in combination than they would be able to do on their own
• Definitive Contract: A document that, once signed, binds a buyer to pay for an acquisition and a seller to divest the asset
• Demerger (also Spinoff): The undoing of an earlier merger, i.e., when a single entity breaks up into multiple smaller ones
• Economies of Scale: Cost savings that a business can realize by increasing the size of its operations 
• Economies of Scope: Cost savings that a business realizes by producing multiple different products simultaneously
• Excess Returns: The difference between the rate of return on a risky investment and a risk-free investment, wherein the latter is equivalent to some form of secure short-term government bond
• Free-Rider Problem: Classically, this occurs when people who benefit from shared or public resources are not willing to pay for them. But in M&A, the problem can manifest as small shareholders being unwilling to tender their shares to a takeover bid unless the bidder offers to buy their shares for a price that reflects all future gains the deal will deliver.   
• Friendly Acquisition: In a friendly acquisition, the buyer’s intent to buy is aligned with the seller’s intent to sell.
• Horizontal Deal: When a company purchases a competitor in the same industry
• Hostile Acquisition or Takeover: In a hostile acquisition, the seller does not want to sell to the buyer. The buyer must sidestep the seller’s management, often appealing to shareholders directly, to acquire control of the company. The buyer then usually ejects the management and the board.
• Letter of Intent (LOI): A document in which one party states its intention to do business with another. A letter of intent does not contain the minutiae of a deal, only its broadest strokes.
• Leverage: In the context of negotiation, this is the capacity of one party to bring another closer to its preferred negotiating position. Leverage also refers to the use of debt to finance a deal.
• Merger (also Merger of Equals): A deal which combines the buyer and the seller to form a new entity. In this scenario, to a large degree, both companies lose their old brands and identities, though one company is often understood to be the survivor. The parties in a merger are typically similar in size. As a rule, mergers are friendly.
• Organic Growth: The rate of growth that a company is able to achieve on its own — that is, without being acquired or merged
• Purchase Price: The dollar cost of an investment or acquisition
• R&D: Research and development. This may refer to a department in a company that is in charge of developing new products and services.
• Revenue Synergy: When two companies are able to increase revenue to a greater extent in combination than they would be able to do on their own
• Reverse Takeover/Merger: When a private company acquires or merges with a public one, so the private company can skip the long and complicated process of going public itself. A reverse takeover can also refer to a small company acquiring a larger one. 
• Return on Invested Capital (ROIC): The percentage return that a company makes over the amount it invested in capital
• Roll-Up: An M&A strategy in which an acquirer buys many smaller firms in the same field and merges them in order to gain economies of scale
• Statutory Merger: A merger in which the acquirer survives and the target is absorbed
• Strategic Merger: When a buyer carries out a merger, so the buyer can better pursue its strategic objectives by obtaining advantages such as synergy, expanded customer bases, and increased brand strength.
• Target: A company that an acquirer pursues
• Triangular Merger: When a shell company (that is a subsidiary of the true acquirer) acquires a target company and then merges with it
• Value Creation: In M&A terms, creating value means taking steps that increase the worth of a business or asset.
• Vertical Deal: When a company purchases another company that occupies a different position in the same supply chain

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Merger & Acquisition (M&A) Strategies Explained

Merger and acquisition (M&A) strategies refer to companies’ approaches and methods to combine with or acquire other businesses. M&A strategy can be used to achieve a range of objectives, including expanding market share, increasing profitability, diversifying product lines, entering new markets, and acquiring new technologies or expertise.

The specific M&A strategy a company chooses will depend on its goals, resources, and the market environment. Companies often work with investment bankers and advisors to identify potential targets and execute their Merger & Acquisition (M&A) Strategies .

M&A activities can be either friendly or hostile. In friendly mergers, the companies involved in the merger agree to the terms of the merger and work together to bring it to completion. In hostile mergers, one company tries to take over another company against its wishes.

M&A activities are often pursued when companies are seeking to expand their operations, increase their market share, or gain access to new technologies or markets. M&A can also be used to improve efficiency, reduce costs, and eliminate competition.

The INSEAD Executive Education  M&A Success Strategies – Online  program will equip you with essential tools and frameworks to make better M&A decisions from start to finish.

Some common Merger & Acquisition (M&A) Strategies include:

1. horizontal mergers and acquisitions :.

Horizontal mergers and acquisitions (M&A) occur when two companies operating in the same industry or market form a larger entity. In a horizontal merger or acquisition, the companies involved are typically direct competitors, aiming to increase market share, reduce competition, and realize cost savings through economies of scale.

Horizontal M&A can take many forms, including mergers, acquisitions, joint ventures, and partnerships. In a merger, two companies combine to form a new entity; in an acquisition, one company buys another. Joint ventures and partnerships involve two or more companies working together to achieve a common goal, often for a limited period.

Horizontal M&A can significantly impact competition in the affected industry or market. By reducing the number of competitors, the merged entity may be able to increase prices and profits, but this can also harm consumers by reducing choice and innovation.

As a result, horizontal mergers and acquisitions are often subject to antitrust regulations and must be approved by government authorities before they can be completed.

2. Vertical Mergers and Acquisitions :

Vertical mergers and acquisitions refer to the combination of companies at different stages of the supply chain or production process. In a vertical merger or acquisition, a company acquires or merges with another upstream or downstream company in production.

Upstream companies are those that provide raw materials, components, or other inputs that are used in the production process. On the other hand, downstream companies are closer to the end consumer, such as wholesalers, distributors, or retailers.

Vertical mergers and acquisitions can provide a number of benefits to the companies involved. For example, they can increase efficiency and reduce costs by eliminating intermediaries in the supply chain, improving coordination between different stages of production, and facilitating the sharing of information and technology.

DoubleClick: An acquisition that skyrocketed Google’s ad business

Vertical mergers and acquisitions can also give companies greater control over their supply chains and enable them to improve the quality and consistency of their products. In addition, vertical integration can help companies to expand into new markets or product lines and create new revenue streams.

However, vertical mergers and acquisitions can also raise antitrust concerns if they lead to reduced competition or increased market power. As a result, they may be subject to regulatory scrutiny and approval by antitrust authorities.

3. Conglomerate Mergers and Acquisitions: 

A conglomerate merger is one of the Merger & Acquisition (M&A) Strategies where companies that operate in different industries come together to form a single entity. This type of merger is often pursued when companies seek to diversify their operations or enter new markets.

Conglomerate mergers can be either pure or mixed. Pure conglomerate mergers involve companies that have no common business areas. In contrast, mixed conglomerate mergers include companies that have some overlap in their business areas but still operate in different industries.

Overall, conglomerate mergers and acquisitions can be complex and require careful planning and execution. Companies must carefully evaluate the potential benefits and risks of such transactions before proceeding, and they must also navigate the regulatory and legal requirements that apply to such activities.

4. Leveraged Buyouts (LBOs): 

A leveraged buyout (LBO) is a financial transaction in which a company is purchased with a combination of equity and significant amounts of debt. Typically, a private equity firm will use borrowed funds, usually secured by the target company’s assets, to acquire a controlling interest in the company.

The private equity firm then restructures the company, often selling off non-core assets and cutting costs, with the goal of increasing its value over a few years. Once the company has been turned around, the private equity firm may sell it to another company or take it public through an initial public offering (IPO), generating a profit for itself and its investors.

LBOs can be controversial because of the high levels of debt involved, which can make the target company more vulnerable to economic downturns and other financial pressures.

Critics argue that private equity firms may be more focused on short-term profits than long-term success and may make decisions that benefit themselves and their investors at the expense of employees, customers, and other stakeholders.

Supporters of LBOs argue that they can provide needed capital to struggling companies and help them become more efficient and profitable, ultimately creating value for shareholders and other stakeholders.

LBOs have been a popular way for private equity firms to acquire and restructure companies in a variety of industries, including finance, retail, and manufacturing. Some well-known LBOs include the acquisitions of RJR Nabisco and Toys “R” Us in the 1980s, as well as more recent deals such as the acquisition of Dell Inc. by Michael Dell and Silver Lake Partners in 2013.

Blackstone and Hilton Hotels: The Beauty of LBOs

4. Joint Ventures :

A joint venture is a business arrangement where two or more parties come together to collaborate and share resources, expertise, and risks to achieve a common business goal. It can be a legal partnership or an informal agreement between two companies or individuals to work together on a specific project or venture.

Joint ventures can provide various benefits, including access to new markets, shared costs and risks, increased expertise and knowledge, and expanded product or service offerings. Joint ventures can also help companies pool their resources to achieve economies of scale and reduce their overall business expenses.

However, joint ventures also come with potential challenges, including differences in management styles, conflicting business objectives, and sharing profits and losses. It is essential to establish clear roles and responsibilities, communication channels, and legal agreements to ensure the joint venture’s success.

Joint ventures can take many forms, such as joint marketing agreements, joint production ventures, and joint development projects. Joint ventures can also be formed between companies in the same industry or across different industries.

5. Strategic Alliances :

Strategic alliances are partnerships between two or more businesses that come together to pursue a common goal. These alliances can take many forms, including joint ventures, collaborations, partnerships, and other types of cooperative arrangements. The primary goal of strategic alliances is to leverage the strengths of each partner to achieve a shared objective.

There are several benefits of forming strategic alliances, including:

• Access to new markets: By partnering with another business, a company can gain access to new markets that it may not have been able to enter on its own.
• Shared resources and expertise: Strategic alliances allow companies to pool their resources and expertise, resulting in more efficient use of time, money, and talent.
• Risk sharing: By forming a strategic alliance, companies can share the risks and costs associated with entering a new market or developing a new product.
• Increased competitiveness: By combining their strengths, companies can become more competitive and better positioned to take on larger competitors.
• Improved innovation: Strategic alliances can promote innovation by bringing together different perspectives and expertise to solve complex problems.

Overall, strategic alliances can be an effective way for businesses to achieve their objectives, whether expanding into new markets, developing new products, or improving operational efficiency. However, it’s important to carefully consider the potential risks and rewards before entering into any partnership. 

Mergers are like marriages. They are the bringing together of two individuals. If you wouldn’t marry someone for the ‘operational efficiencies’ they offer in the running of a household, then why would you combine two companies with unique cultures and identities for that reason? Simon Snek

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• Overview of the M&A Process
• 10-Step M&A Process
• Structuring an M&A Deal
• Rival bidders in M&A
• Strategic vs Financial Buyers in M&A

Analyzing Mergers and Acquisitions

• Careers Involved in the M&A Process
• More M&A Transaction Resources

Mergers Acquisitions M&A Process

This guide outlines all the steps in the M&A process

Overview of the M&A Process

The mergers and acquisitions (M&A) process has many steps and can often take anywhere from 6 months to several years to complete. In this guide, we’ll outline the acquisition process from start to finish, describe the various types of acquisitions (strategic vs. financial buys), discuss the importance of synergies (hard and soft synergies), and identify transaction costs. To learn all about the M&A process, watch our free video course on mergers and acquisitions .

10-Step M&A Process

If you work in either investment banking or corporate development, you’ll need to develop an M&A deal process to follow. Investment bankers advise their clients (the CEO , CFO , and corporate development professionals) on the various M&A steps in this process.

A typical 10-step M&A deal process includes:

• Develop an acquisition strategy – Developing a good acquisition strategy revolves around the acquirer having a clear idea of what they expect to gain from making the acquisition – what their business purpose is for acquiring the target company (e.g., expand product lines or gain access to new markets)
• Set the M&A search criteria – Determining the key criteria for identifying potential target companies (e.g., profit margins, geographic location, or customer base)
• Search for potential acquisition targets – The acquirer uses their identified search criteria to look for and then evaluate potential target companies
• Begin acquisition planning – The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is
• Perform valuation analysis – Assuming initial contact and conversations go well, the acquirer asks the target company to provide substantial information (current financials, etc.) that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target
• Negotiations – After producing several valuation models of the target company, the acquirer should have sufficient information to enable it to construct a reasonable offer; Once the initial offer has been presented, the two companies can negotiate terms in more detail
• M&A due diligence – Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.
• Purchase and sale contract – Assuming due diligence is completed with no major problems or concerns arising, the next step forward is executing a final contract for sale; the parties make a final decision on the type of purchase agreement, whether it is to be an asset purchase or share purchase
• Financing strategy for the acquisition – The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing typically come together after the purchase and sale agreement has been signed
• Closing and integration of the acquisition – The acquisition deal closes, and management teams of the target and acquirer work together on the process of merging the two firms

Structuring an M&A Deal

One of the most complicated steps in the M&A process is properly structuring the deal. There are many factors to be considered, such as antitrust laws, securities regulations, corporate law, rival bidders, tax implications, accounting issues, market conditions, forms of financing, and specific negotiation points in the M&A deal itself. Important documents when structuring deals are the Term Sheet (used for raising money) and a Letter of Intent (LOI) which lays out the basic terms of the proposed deal.

To learn more, watch CFI’s free Corporate Finance 101 course .

Rival bidders in M&A

The vast majority of acquisitions are competitive or potentially competitive. Companies normally have to pay a “premium” to acquire the target company, and this means having to offer more than rival bidders. To justify paying more than rival bidders, the acquiring company needs to be able to do more with the acquisition than the other bidders in the M&A process can (i.e., generate more synergies or have a greater strategic rationale for the transaction).

Strategic vs Financial Buyers in M&A

In M&A deals, there are typically two types of acquirers: strategic and financial. Strategic acquirers are other companies, often direct competitors or companies operating in adjacent industries, such that the target company would fit in nicely with the acquirer’s core business. Financial buyers are institutional buyers, such as private equity firms, that are looking to own, but not directly operate the acquisition target. Financial buyers will often use leverage to finance the acquisition, performing a leveraged buyout (LBO) .

We discuss this in more detail in the M&A section of our Corporate Finance course .

One of the biggest steps in the M&A process is analyzing and valuing acquisition targets. This usually involves two steps: valuing the target on a standalone basis and valuing the potential synergies of the deal. To learn more about valuing the M&A target see our free guide on DCF models .

When it comes to valuing synergies, there are two types of synergies to consider: hard and soft. Hard synergies are direct cost savings to be realized after completing the merger and acquisition process. Hard synergies , also called operating or operational synergies, are benefits that are virtually sure to arise from the merger or acquisition – such as payroll savings that will come from eliminating redundant personnel between the acquirer and target companies.

Soft synergies , also called financial synergies, are revenue increases that the acquirer hopes to realize after the deal closes. They are “soft” because realizing these benefits is not as assured as the “hard” synergy cost savings. Learn more about the different types of synergies .

To learn more, check out CFI’s Introduction to Corporate Finance course .

Careers Involved in the M&A Process

The most common career paths to participate in M&A deals are investment banking and corporate development. Investment bankers advise their clients on either side of the acquisition, either the acquirer (buy-side) or the target (sell-side). The bankers work closely with the corporate development professionals at either company. The Corp Dev team at a company is like an in-house investment banking department and sometimes is referred to internally as the M&A team. They are responsible for managing the M&A process from start to finish.

To learn more, explore our  Interactive Career Map .

More M&A Transaction Resources

We hope this has been a helpful overview of the various steps in the M&A process. CFI has created many more useful resources to help you more thoroughly understand mergers and acquisitions. Among our most popular resources are the following articles:

• How to Get a Job in Investment Banking
• Why Investment Banking?
• M&A Project Names
• Deal Origination
• See all valuation resources
• See all equities resources
• Share this article

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5 Types of Merger & Acquisition Strategies: Benefits & Challenges

If you’re a company looking to grow, you might be considering adopting an M&A strategy to diversify your products and services, reach new target markets and increase revenue.

However, integrating two separate entities brings many challenges, and there’s no strategy that’s one-size-fits-all.

In order to maximize your potential for growth and convince others to partner with you, you need to obtain a solid understanding of your business on every level, including: processes, technology, team members, stakeholders, competitors, industry ongoings and more.

It’s vital that you understand the different types of mergers and acquisitions so you can decide which is best to pursue and start allocating the proper resources.

Questions to Ask Before a Merger or Acquisition:

• What is the main goal I’m trying to achieve?
• What value do I aim to create?
• What traits and characteristics does my target company embody?
• What does the timeline look like?
• Who is going to be involved and what are they going to do?
• Do I have the right technology and systems in place to gather all the necessary data?
• What does my outreach strategy look like?
• How am I going to present my business to potential partners?

We’ll now explore the five types of mergers and acquisitions alongside common benefits and challenges so you’re best prepared to find the right partner for your growth.

Types of Merger & Acquisition Strategies:

1. vertical m&a strategy.

A vertical M&A strategy occurs when two or more businesses that operate within different stages of the supply chain come together to create an integrated good or service.

Example of a vertical M&A strategy: eBay acquiring PayPal — if you purchase something from eBay but pay via PayPal, you’re technically experiencing the result of a vertical merger.

Benefits & Challenges of a Vertical M&A Strategy

• Increased operational efficiency
• Lower operating costs
• Higher profits
• Better quality control

Challenges:

• Contrasting company cultures
• Potential to lose key team members as roles are combined
• Increased bureaucratic costs

Common benefits of vertical mergers include increased operational efficiency and lower operating costs, as these responsibilities are now shared by two entities rather than one.

That means higher profits — but only if you’re able to successfully navigate contrasting company cultures and increased bureaucratic costs.

Plus, there’s also the potential to lose key team members, as now you have double the workforce under one roof.

2. Horizontal M&A Strategy

A horizontal M&A strategy can be defined as two businesses that operate in the same industry joining forces to eliminate competition.

Example of a horizontal M&A strategy: the integration of Disney and Pixar.

Benefits & Challenges of a Horizontal M&A Strategy

• Increased revenue
• Diversification of products and services
• Larger market reach
• Less competition
• Increased regulatory scrutiny
• Less business mobility
• Less control over decision making
• Providing less value to your customers compared to before

Aside from less competition, horizontal mergers often result in a spike in revenue due to the diversification of products and services and access to a new portion of the market.

Depending on who you choose to partner with, you may find yourself facing an increase in regulatory scrutiny, which leads to a reduction in business mobility and control over decision making.

Unfortunately, there’s also the potential that your pre-merger products and services were more valuable to your customers than your new offerings – that’s why conducting adequate testing and research before you go to market is so important.

3. Conglomerate M&A Strategy

A conglomerate M&A strategy involves merging two companies that have entirely separate business activities.

There are two forms: pure, in which each company continues to do business solely in their own market, and mixed, in which product and market extensions are conducted.

Example of a conglomerate M&A strategy: Amazon’s acquisition of Whole Foods.

Benefits & Challenges of a Conglomerate M&A Strategy

• Larger market share
• Business diversification
• Higher revenue
• Less efficiency
• Opposing workplace cultures
• A change in core business values, which can cause friction with customers and stakeholders

Benefits of conglomerate mergers include an increase in market share, business diversification, and a spike in revenue, as you are now able to cross sell your products and services.

However, you may also experience a reduction in efficiency and a clash of workplace culture. This type of merger can also cause you to shift away from your core business values, resulting in friction with your customers and stakeholders.

4. Market Extension M&A Strategy

Market extension M&A strategy is when two entities that produce the same type of product to different markets come together under one roof.

Example of a market extension M&A strategy: When the Royal Bank of Canada, RBC Centura, Inc., acquired American-based Eagle Bancshares, Inc., resulting in RBC gaining access to over $1.1 billion in assets.

Benefits & Challenges of a Market Extension M&A Strategy

• Larger client base
• Extended market reach, potentially international
• More business responsibility
• Higher capital requirements
• Potential for debt to accrue

A market extension merger provides access to a larger client base and an increase in market reach – potentially worldwide, in fact.

However, more growth results in more responsibility, as you now have to manager bigger capital requirements and the potential for debt to accrue – which you’ll have to navigate even if it’s not stemming from your end.

Example of a market extension: NetSuite’s acquisition of Oracle.

5. Product Extension M&A Strategy

A product extension M&A strategy involves two companies within the same market provide different types of products or services that are designed to be consumed together. This differs from market extensions in that instead of trying to reach new markets, you’re looking to diversify your products and services.

Example of a product extension M&A strategy: Pepsi Co.’s acquisition of Pizza Hut.

Benefits & Challenges of a Product Extension M&A Strategy

• Extended customer base
• Shared resources
• Lower operational costs
• Market clutter or confusion
• Less efficiency for production and marketing

The main benefit is the creation of a singular “mega product” that grants access to an extended customer base.

In addition, since you’re sharing resources and costs with another company, you’ll often see a reduction in the money you spend on operational processes.

However, the downside is the potential to over-clutter the market and experience a decline in the efficiency of your production process.

How to Choose the Best M&A Strategy & Move Forward

If you want to put your best foot forward with your M&A strategy, you’ll need to conduct a detailed analysis of your company goals and operations.

Oftentimes, your business will become more attractive to potential partners if you focus on integrating optimized technology, reworking your KPIs and conducting detailed product and market research – so you may find yourself needing to take a step back to rework before you progress.

In order to properly execute one of the types of mergers and acquisitions and close the deal , you’ll need to outbid your competition, factor in ever-changing market conditions and adhere to new laws and regulations.

However, you don’t have to go it alone.

Our team at Bridgepoint Consulting has proven experience in conducting sell-side readiness to best position your company for a merger or acquisition. Or if you’ve already acquired a company but need a little guidance in conducting reporting and identifying synergy, our post-acquisition integration experts are here to help.

Whatever your needs, our diverse and experienced team of finance and accounting , technology , auditing , and risk and compliance professionals are here to provide the financial guidance you need exactly where you need it.

By Bridgepoint Consulting

Recent consulting news & industry insights from the Bridgepoint digital content & research teams.

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How to Write a Business Plan for an Acquisition

• Small Business
• Business Planning & Strategy
• Write a Business Plan
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How to Write a Business Plan Outline

How to amend the business name on a court document, how to overcome corporate cultural issues in mergers & acquisitions.

• How to Write a Wedding Planning Business Plan
• Step-Ups in Valuation of Assets for a Newly Acquired Business

Many considerations come with a business acquisition. Not only do you have to consider the cost of the purchase, you have to consider how your business will integrate the newly purchased assets and utilize, or relieve, the employees that come along with the business. The business plan takes these and other acquisition considerations, along with their pros and cons, and organizes them into reusable research and analysis.

Create the business description for your business plan. List the legal business description of your business and indicate that your business is acquiring a business. Provide a detailed account of that business’ history, including staff size, location, legal business description and financial history. Identify the business’ short- and long-term goals and projections.

Create your business plan’s staffing section. List the managers and staff required to complete the business’ operations in a timely and efficient manner. Explain the functions of each manager and identify each of your business’ departments.

Identify the number of acquired employees and show how those employees will be integrated into the business. List the costs of all employment aspects, including costs, such as payroll, training, benefits and severance packages. Create an organizational chart to show the chain of command.

List the location of your business, as well as the locations of any acquired property. Explain how the properties are utilized by the business, as well as the costs for each. Include items such as zoning compliance fees, utilities and taxes in your expense list.

Show if the properties are owned, leased or rented. Address which properties will be retained and which will be released. Determine how your business will utilize the equipment and inventory acquired during the acquisition. Explain the steps that your business will use to control its losses and increase its assets.

Identify the external threats and opportunities that accompany the business acquisition. Look at areas such as customer demands, government regulation and industry competition. Research the identified areas thoroughly. Develop strategies to overcome the threats that accompany the acquisition and ascertain how your company will take advantage of its underlying opportunities.

Identify the products and services that your business will focus on after the acquisition. Categorize the original products and services against the newly acquired ones. Show and explain the costs and procedures of implementing the change requirements and merging the businesses. Identify any newly created products that result from the merge of company resources and identify any new equipment or inventory that will be required.

Identify the target market for your business. Explain how this market has changed as a result of the acquisition. Differentiate the market by separating it into categories of original, acquired and new markets. Address each category separately. Ascertain how your business will maintain its original customer base, and welcome its acquired and new customers.

Create financial statements for your business acquisition. Include personal financial statements for each owner of the business. Provide a balance sheet, income statement and cash flow statement for the business at a point just after the acquisition. Use realistic figures and assumptions when forecasting the business. Include complete financial statements for your original business and acquired business, for the past three years, to support and justify your forecasts.

Use the executive summary to introduce your business, along with the new products and services that result from the acquisition. Highlight your company’s various target markets and briefly review the trends within the industry. Review the reasons for the acquisition and explain how the acquisition will make your company stronger. Limit the executive summary to no more than three pages.

Include a copy of the acquisition contract in the appendix of your business plan, along with supporting documents, such as lease agreements, warranties and building appraisals. Begin the appendix with a content page. Label the documents accordingly and place the appendix at the end of your business plan.

• MasterCard International: The Plan

Writing professionally since 2004, Charmayne Smith focuses on corporate materials such as training manuals, business plans, grant applications and technical manuals. Smith's articles have appeared in the "Houston Chronicle" and on various websites, drawing on her extensive experience in corporate management and property/casualty insurance.

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Mergers & Acquisitions: Complete Guide to M&A Project Management

April 29, 2022 - 10 min read

Mergers and acquisitions (M&A) are a consolidation of companies and their assets through various types of financial agreements, including debt-to-equity, tender offers, purchase of assets, management acquisitions, mergers, or acquisitions. 

A merger is an agreement that unites two existing companies into one new company, while an acquisition is where one company purchases most or all of another company's shares to gain control of the business.

Both are complex processes that require an incredible amount of planning, organization, communication, insight, and management. Deal teams must have proper management expertise, tools, and technology to advance each one.

This is where M&A project management comes in. M&A planning is a component of your organization’s strategic planning. Whether you're the company that is acquiring or selling, it's essential to stay on top of what happens in your industry. M&A managers should know how mergers or acquisitions within their industry may impact their organization's positioning.

What is M&A project management?

M&A project management is the process of applying project management best practices to pre- and post-merger activities. When two companies consolidate or one firm acquires another, there is a series of complex steps an M&A project manager must execute to close the deal and integrate both companies successfully.

It's important to be confident in your ability to manage a project from start to finish, as M&A projects are often lengthy and involve conversations at various stages along the way. M&A project management uses project management methods to achieve the goals of the M&A deal, which generally include creating higher value for shareholders and maintaining business continuity . 

M&A project management handles responsibilities, including designating key roles and tasks, supervising workflows, and establishing standards, timelines, and targets in the post-merger organization.

What does an M&A project manager do?

Industry-specific knowledge for an M&A project manager is helpful but not required. It's more important that M&A managers have experience closing M&A deals and implementing integration plans post-merger and a clear idea of each individual project definition when beginning a new M&A deal.

The M&A project manager evaluates both companies’ opportunities for mergers, acquisitions, and divestitures . They oversee pre- and post-merger financial planning, scoping, closing, and integration and coordinate research and analysis activities to assess risk and impact. M&A project managers must be adept at collaborating with stakeholders, managing staff, and developing financial models and projections to estimate cash flow and profitability potential.

A good M&A project manager should have the following skills: 

• Governance : M&A project managers must know how to structure teams, lead execution, and control processes to run the organization simultaneously with post-merger M&A projects.
• Finance knowledge: An M&A project manager should be familiar with financial planning alternatives for financing the deal. They should have financial management and budgeting skills to manage money in the post-merger organization.
• Risk management : The M&A project manager works to achieve the transaction's goals and avoid financial loss. They should be skilled in opportunity-spotting and familiar with law, regulations, strategic thinking, and risk analysis . 
• Performance management: The M&A manager should understand and communicate the critical success factors of the post-merger organization, developing metrics to reflect them and adapting to make sure the team meets its goals.
• Quality assurance: The M&A project manager must ensure all staff members adhere to best practices, complete projects successfully, and document processes and lessons to improve future M&A projects. 
• Work management: M&A work management includes project management skills as well as maintaining collaborative team spirit and productive workflows. It involves applying technology to execute tasks and meet project goals.
• Information management: Due diligence in M&A can spiral out of control if there is no process for reviewing, storing, and collating corporate data. Efficient M&A project management requires managers to store data in a secure yet accessible workspace where team members can communicate and work in real time, making data-driven decisions. 
• Resourcing: Resourcing means knowing how much time, money, people, and other assets you need to execute M&A projects. It also means securing, allocating, and managing these resources efficiently across your ongoing projects.

Why is M&A project management important?

M&A project management is critical because it impacts the post-merger relationship between both companies. M&A is itself a big project with extensive interdependencies. Good M&A project management helps to keep your teams on track, aligned, and successful. Other benefits of M&A project management include:

• Better deal strategies 
• More realistic pricing 
• Alignment between organizations 
• Specified roles and responsibilities
• Prioritization of the most critical tasks 
• Fewer operations disruptions during M&A integration
• More effective stakeholder communications 
• Decreased risks in the post-merger company 

M&A project management provides guidelines, structure, and documentation to close M&A transactions, integrate operations, and make adequate, realistic staffing and resource allocation decisions in the post-merger organization.

Key processes in pre-merger M&A project management

M&A project management is crucial during the pre-merger phase, as it lays the foundation for the rest of the M&A implementation. This includes developing your strategy, searching for targets, conducting negotiations, and making efforts to close a deal. 

To start a project, you need to create a project charter , define its scope, identify your objectives, and bring relevant stakeholders on board. Next, break down the work into tasks and subtasks, setting due dates, allocating resources, mitigating risks, and estimating costs.

Then it's time to execute. Assign responsibilities within your team and create a single source of truth to communicate and collaborate in real-time. A collaborative workspace like Wrike provides a secure platform to achieve these and keep team members on track. Steps in a typical M&A project execution include:

• Scheduling kick-off and status meetings
• Conducting due diligence
• Assessing performance
• Comparing targets
• Estimating risk
• Updating stakeholders
• Documenting lessons
• Consulting experts
• Planning integration 

M&A pre-merger project management tasks usually involve:

• Strategy alignment: Clarify what your company aims to gain from the merger or acquisition and confirm that you're aligned with potential partners.
• Screening: Develop guidelines for selecting potential targets, such as organization size, location, revenue, product, or market. Create a list of candidates that match these criteria and assess them on other factors and alignment with your company. 
• Preparatory work: If the target company is receptive to a deal, sign a confidentiality agreement and review the business. If the review is favorable, send a written offer — usually a price range, not a fixed price.
• Negotiations: Discuss terms and try to close a good deal. Your price may be based on information about the industry or the state of the business. When you reach a price, sign a letter of intent with the other party. 
• Due diligence: Conduct in-depth reviews of the target company's accounts and records to verify the status of the business and check for hidden liabilities.
• Contract development: Write, review, and authorize a final contract for the M&A transaction. 
• Financing: Raise the money for the transaction. You can do this through loans, debt, stock issuance, or a combination of these options. 
• Closing: Representatives of both the buyer and the seller sign contracts and exchange money. 

Pre-merger M&A project management best practices

In the pre-merger phase, project management best practices ensure sound decision-making and risk management. Best practices include:

Using a phase-gate process to manage M&A projects

Using the phase-gate process in M&A project management is a great way to organize and execute tasks in phases as you advance from one critical stage to the next. 

The phase-gate process requires a review of each project stage before moving on to the next. Specific criteria must be met to determine the success of each phase. This helps the acquiring companies review hundreds of potential M&A targets to find the best deal. Setting clear criteria for what makes a target eligible enables you to maintain focus on your organizational needs and strategy. 

Without defining clear parameters, your team may waste resources going after candidates that do not align with the M&A strategy. Typically, there are three main decision points in the pre-merger M&A phase-gate process:

• Strategy approval: You decide whether a deal candidate fits your company's strategy. You do this based on the alignment of values, goals, and other critical factors, such as increased revenue or percentage gain in market share. 
• Negotiation approval: After you have assessed your candidates, you must decide whether to start negotiations with any of them. Based on your review of their financial information, confirm that your objectives for a deal remain realistic. At this phase-gate, you set a target price for a transaction. 
• Deal approval: This decision point is your final yes/no review, where you seek definitive agreement from your board and management. At this point, you are beyond questions about strategic fit and valuation. You seek approval of other details, most of which depend on the nature and goal of your transaction.

Other pre-merger best practices

Other pre-merger project management practices are similarly aimed at making sure your deal is sound and has a good chance of success.

• Articulate "why": Have a clear pitch for pursuing an M&A. List the advantages of doing so against alternatives that would achieve the same objective. Articulate why a merger or acquisition is one of the best ways.
• Be aware of the mental traps: Look out for biases and mental traps that can skew your judgment about the M&A. An example is recency or confirmation bias . Consult diverse stakeholders and actively seek out opposing views.
• Bring in experts: If you're new to M&A, improve execution and chances of success by hiring experienced M&A consultants and advisors to strengthen your process and conduct due diligence.
• Be diligent about due diligence: Be dogged in the vetting process to avoid undiscovered liabilities after a deal closes.
• Coordinate your work: Improve your M&A system with a focused project plan that defines roles, activities, and responsibilities for all team members. Keep this in a centralized location, easily accessible to all employees.
• Prioritize actions in order of impact: Identify tasks with the highest, immediate payoff on the business, and gain some wins and momentum to demonstrate ROI on the M&A deal.  
• Get sponsorship: From inception, make sure senior management and board members buy into and back the M&A strategy. 
• Define the work to be done post-merger: Do this collaboratively with your teams as you wrap up the M&A deal.
• Keep your teams in the loop: Communicate clearly about strategy, expectations, and changes. Ensure staff members know what’s going on, what to do, and what information is confidential until finalized. 

Key processes in post-merger M&A project management

Post-merger M&A project management focuses on:

• Team planning 
• Integration of the companies
• Building organizational structure
• Stakeholder updates
• Monitoring performance
• Achieving M&A goals

Post-merger M&A project management best practices

The post-merger period builds the foundation for realizing the intended benefits of the M&A. Without post-merger project management best practices, missteps can ruin the partnership's potential. Strong project management decreases your risk and provides you with a system.

Best practices for project management in the post-merger stage fall into broad categories: 

• Project planning
• Communication
• Resource planning
• People issues
• Monitoring progress
• Measuring performance

It’s critical to carry along your team to tackle post-merger tasks with high productivity and engagement. Create a rewards strategy that combines growth opportunities, recognition, and benefits to incentivize employees to achieve post-merger goals.

Ensure your company's mission remains clear and communicate changes quickly, so your employees have stability amid the new developments. Make sure they understand the M&A rationale and how it ties into your original vision so that they can commit their best efforts to its success. 

When it comes to people and culture-fit in the post-merger organization, tread prudently. Organize staff-related issues, e.g., planning for layoffs, creating a new corporate structure, and assigning key responsibilities before moving on to the M&A integration plan.

Common M&A project management mistakes

According to a report in the Harvard Business Review, 70%-90% of M&A projects fail due to common challenges and mistakes. Here's a list of the most recurring mistakes M&A managers make:

• Moving too fast with an integration plan
• Overextending resources
• Insufficient attention to target company culture
• Poor management of relocations and consolidations
• Weak IT planning
• Inadequate M&A project management controls
• Lack of planning for heightened competition
• Inadequate efforts to identify synergies

Acquirers often push their ethos and culture without a healthy transition period for the acquired company. This causes chaos, disorganization, and low morale among employees. Underestimating and overextending staff and resources is another frequent mistake in M&A projects. 

How to create a merger and acquisition project plan

Your M&A project planning process must be disciplined and comprehensive. The following are critical elements of the M&A project planning process:

• Align your vision and strategic plan
• Develop an M&A strategy
• Document relevant M&A policy and procedures
• Assess your organization's M&A readiness
• Identify M&A candidates or partners
• Develop an M&A integration plan
• Conduct post-merger review and assessment

How to create an acquisition plan

One of the errors many M&A managers make as they start a merger or acquisition is not putting together an acquisition plan. The acquisition plan guides the entire process and is a much-needed asset when planning M&A.

It creates a roadmap for what you want from the M&A and reassures sponsors that the merger or acquisition is thought-through and well-managed. 

When writing your acquisition plan, ask yourself if what you're writing explains the M&A opportunity clearly. The format of the acquisition plan follows a similar structure as a typical business plan. Here's an outline of an acquisition plan:

1. Executive summary

Your executive summary should be concise, information-rich, and no more than one page in length. Its goal is to sell the M&A opportunity as best as possible. Make sure to include your target market, business strategy, and summary financials. Investors may read only this page before skipping to the financial projections, so make sure it's strong.

2. Target description

This section outlines the target business and why it's worth what you're proposing to pay for it. Be as thorough as possible. If you see specific weaknesses in the business, talk about how you can iron them out and create value. Make sure to include:

• Headline financials
• A breakdown of the company's primary assets and liabilities
• Organizational structure
• A current SWOT analysis

3. Market overview

The more granular the detail and relevant to your region this section is, the better. Answer the following questions:

• How many customers does the target have?
• What kind of customers are they?
• Is there a different kind of demand for the target outside of its current customer base?

4. Sales and marketing

This section covers sales for the target's products and services. It should compare their pricing strategy to yours and show how both companies conduct marketing. 

5. Financial history and projections

This section is the one that can make or break the deal. You should be as thorough as possible, reviewing and assembling the target's past financial performance. Typically, this should involve at least three years of financial statements and tax returns. Each one should be comprehensive and honest, having supporting documents where needed. 

Raise any issues which may conflict with your business, e.g., different credit arrangements with customers. You should also look at projections for the business. Going through the past and projections sections is a useful exercise to summarize where you will make gains or losses from the merger or acquisition.

6. Transition plan

This is a brief section showing how the business will move from the control of the current owners to the post-merger owners. This section should detail how sales relationships, contract agreements, and intellectual property will be dealt with in the post-merger organization. Minimize the chaos that can come with transitioning the organization by getting this section right. 

7. Deal structure

This section shows the financial structure you will use to acquire the target company.  

8. Appendices and supporting documents

This should include copies of tax returns, compliance licenses, and receipts, including auditors' letters and other relevant legal documents. 

While there is room for variation in sections of each business plan, every plan should convince the reader of the merits of the merger or acquisition. Each section should be compelling, relevant, and detailed.

How Wrike can help with M&A project management

M&A experts recommend using project management techniques to organize your tasks from the beginning when exploring potential deals until you fully complete an M&A transaction and start integrating both businesses. 

Wrike helps M&A executives and project managers communicate and collaborate in real-time, manage information flows and workflows, get approvals and signatures, maintain deep visibility, and extract insights from different sections of the acquisition plan and ongoing projects. 

This collaborative approach with Wrike minimizes chaotic work, misalignment, and scattered collaborations in the post-merger organization. Try Wrike's project management software for free with a two-week trial .

Kelechi Udoagwu

Kelechi is a freelance writer and founder of Week of Saturdays, a platform for digital freelancers and remote workers living in Africa.

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How to Communicate a Merger and Acquisition to Employees in 9 Steps

Mergers and acquisitions, or M&A as the process is more commonly known in the business world, reached an all-time high in 2021 as companies struggled to find their footing following shutdowns and a “new normal” brought about by the pandemic. While M&As made headlines at that time with mega-deals in the $20- to $30-billion range, in 2023, M&A is taking a new form  –  but no less impactful for companies and their employees.

Today, mid-market transactions are dominating as CEOs use a program of both strategic acquisitions and select divestitures to transform their portfolios for the future, reports PwC .

Whether strategic moves that a company makes are to expand its operations, improve competitiveness, or achieve distinct financial objectives, M&A transactions often present a double-edged sword that brings about exciting opportunities while also introducing uncertainty and change that can be unsettling for employees. That is why effective communication during mergers and acquisitions is crucial to ensuring a smooth transition and maintaining employee morale and productivity.

Having guided companies spanning from healthcare to the financial services industries through the M&A gauntlet, The Grossman Group has honed firsthand knowledge around the intricacies of communicating mergers and acquisitions to employees. We have cultivated insights on the importance of M&A communications and the role of internal communications during this pivotal time for businesses.

The result is the identification of a step-by-step approach to effectively inform and engage employees throughout the process. Of course, even the most tried-and-true plan can still hit roadblocks along the way, which is why as part of the planning process, we make a point to identify strategies for overcoming employee resistance and tactics for unifying company cultures well beyond the initial announcement of these transformative events.

What is M&A Communications?

Often referred to as merger and acquisition communication, this is the strategic process of conveying information related to a merger or acquisition to various stakeholders, with a primary focus on employees within the organizations involved. These communications encompass a range of messages, from initial announcements to updates on the integration progress, and are designed to keep employees informed, engaged, and aligned with the company's new direction.

Why Does Communicating About Mergers and Acquisitions Matter?

Of course, keeping employees engaged is important, but should it really rise to the top of the priority list when there are legal, regulatory, and financial considerations to consider as part of every M&A deal? In short, absolutely.

Effective communication during mergers and acquisitions is essential, not only to ensure the success of the companies involved but also to ensure employees have what they need to continue performing at their best despite the changes that are underway. Ultimately, M&A communications are the key to:

Reducing Uncertainty

M&A transactions can trigger fear and uncertainty among employees who may be concerned about job security, changes in leadership, or adjustments to their roles. According to a 2020 survey by Mercer , 73% of employees consider communications during M&A to be important for reducing anxiety and uncertainty. Clear and transparent communications help answer the most common questions and alleviate concerns that employees across the board are likely to experience. Open communications during this transformation period also fosters a sense of trust in leadership that allows employees to better focus on the here and now rather than spending time on distractions around “what if” scenarios.

Retaining Talent

Employees are a company's greatest asset, and the loss of key talent during a merger or acquisition can hinder the transaction’s success. Effective communications can help retain employees by providing a compelling case for change and addressing their concerns. In fact, a 2019 study by Deloitte found that organizations that effectively communicate during M&A are 3.5 times more likely to retain employees.

This means that those companies who take the time to plan and prioritize communications on the front end are not only preserving human capital, but also ensuring the smooth transition, cultural integration, cost-effectiveness, and long-term success of the newly merged entity.

Enhancing Employee Morale

Those companies that effectively communicate M&A changes to employees experience an increase in employee engagement compared to those that do not, according to results of annual Gallup studies focused on employee engagement . This means that communicating proactively can boost employee morale and help maintain productivity during times of transition. It all boils down to basic human nature – answering the WIIFM (what’s in it for me?).

When employees understand the rationale behind the merger or acquisition and how it benefits them, they are more likely to remain engaged and motivated. This outcome directly supports one of the most important guiding principles of M&A, which is to not let the deal distract from daily business operations.

The Role of Internal Communications in M&A

It’s clear that internal communications do matter when it comes to M&A, but that’s just the tip of the iceberg. We’ve found that defining the role of internal communications throughout each stage of the transaction and doing so early on with each stakeholder involved in the deal – that includes leadership, HR, transformation offices, IT, and legal across both companies – can make or break the success of the transaction.

Plain and simple, the internal communications team is responsible for crafting and delivering messages that keep employees informed, engaged, and aligned with the organization's goals before, during, and after a merger or acquisition. This includes:

Information Dissemination

Internal communicators are responsible for crafting and disseminating timely and accurate information about the merger or acquisition. They ensure that employees receive critical updates, including who is impacted and how, when changes will be effective, and who to contact with questions. Oftentimes the level of detail and tone of the messaging or type of information will vary by audience.

For example, there may be one set of messages for all employees of the company being acquired, another complementary set for those employees at the company doing the acquiring, and perhaps even another set of messages for those employees in departments that will directly engage with the new team members or expand as a result of the transaction. At the heart of every message is the goal of helping employees understand the implications of the transaction and what they need to do as a result.

Employee Engagement

Internal communications experts work to engage employees throughout the process. This includes creating opportunities utilizing current channels or perhaps creating new ones for employees to ask questions, share feedback, and participate in the decision-making process when appropriate.

This area of responsibility also includes establishing a feedback loop, such as formalized listening through surveys, polling, and focus groups, that allows employees to express their concerns, ask questions, and provide input that is vital for addressing employee resistance and ensuring a smooth transition.

Alignment with Corporate Culture

Internal communicators help bridge the gap between the existing corporate culture and the desired culture post-merger or acquisition. They convey the values, vision, and mission of the new entity – oftentimes facilitating the process to arrive at these fundamental pillars – all with the underlying goal of fostering a sense of unity and rallying employees around common goals and ways of working.

Three Phases of M&A Communications

A well-rounded merger or acquisition communication plan addresses three distinct phases to ensure comprehensive coverage:

Phase I: Pre-Announcement Planning

Pre-announcement planning sets the stage for how teams will work together and the philosophy around announcing and communicating details of the M&A. The importance of this phase cannot be underscored enough and takes an integrated team to complete the steps effectively.

• Stakeholder Analysis: Identify key stakeholders, including employees, and understand their concerns and expectations.
• Message Development: Craft clear and consistent messages that align with the organization's strategic objectives.
• Timing: Create a detailed timeline that outlines when each communication phase will occur. Include milestones such as the announcement date, integration progress updates, and celebrations of successes. This starts with determining the optimal timing for the announcement, taking into account market conditions and employee schedules. From there, you can build a work-back timeline to ensure all bases are covered when the announcement day arrives. This also ensures that you don’t miss a beat following the announcement as you begin planning the next communication based on any upcoming milestones, such as closing the deal.
• Leadership Preparation: Having members of the leadership team from both companies play a visible role in the announcement helps to demonstrate both continuity and commitment. That’s why it is important to ensure those leaders are comfortable and familiar with the messaging, have practiced how to tell employees about a merger or acquisition, are clear on how they will handle tough questions, and are available to participate in events.

Phase II: Announcement

This phase is what many view as the crux of activity, and indeed the days leading up to and the day of the announcement promise to keep the entire communications team hopping. The focus during this time is to ensure seamless execution, troubleshoot any issues that may arise, and ensure all i's are dotted and t’s are crossed.

• Information Sharing: Conduct town hall meetings or webinars to present the merger or acquisition details and allow for employee questions. To ensure you reach as many members of the team as possible, you also should plan to send out written communications, such as emails and newsletters, to provide additional information and context.
• Feedback Mechanisms: Establish channels that encourage two-way dialogue for employees to ask questions and provide feedback, such as Q&A sessions or feedback forms. Appoint employee representatives to participate in integration planning and decision-making.

Phase III: Updates at Key Milestones

While some may consider the work done when the announcement is complete, the difference between good and great M&A communications is often made in the follow-up. This phase, when done correctly, should dovetail seamlessly into the company’s ongoing communications.

• Regular Updates: Provide regular updates on the progress of the merger or acquisition, including achievements and challenges. This is where communications may need to be further customized based on the impacts to individual audience groups.
• Celebrate Successes: Highlight achievements and milestones to maintain excitement and momentum. This also creates built-in opportunities to share proof points that back up the case for change that you shared when the deal was first announced.

How to Plan Employee Communications During a Merger or Acquisition

Now that we know the what, why, where, and when it is critical to spend time focused on defining the how of M&A communications. Effectively communicating a merger or acquisition to employees requires a well-thought-out plan. Here are the key steps to follow:

1. Assemble a Cross-Functional Team

Start by ensuring communications is a part of a dedicated M&A team that also includes representatives from HR, legal, senior management, and IT. This team will be critical in crafting and executing the merger or acquisition communications plan.

2. Identify the key audiences

From an internal perspective, all employees are a critical audience, but there are certainly sub-groups within that pool that warrant customized communication approaches. It is important to partner with members of the cross-function team to develop personas for these sub-groups as a means of identifying impacts, perceptions, preferred channels, and areas of concern that are unique to each group.

3. Develop a Clear Message

Craft a clear and concise message – this may be in the form of key statement messages and/or a full change narrative. Whatever form(s) it takes, this is the foundation for your communications throughout this process, so ensure you have buy-in from leadership on all sides and test the messaging from the perspective of the audience personas you created in the previous step. Messages should explain the rationale behind the deal by laying out the case for change , the expected benefits, and what employees can anticipate and/or the actions they need to take. It's crucial to be honest and transparent, acknowledging potential challenges while emphasizing the opportunities. Including details around timing, to the extent possible, also helps employees better understand what’s coming and when.

4. Select the Proper Channels

Choose the most effective  communication channels for each audience set. This might include a combination of email, intranet updates, video messages from leadership, and in-person meetings.

5. Choose the Right Timing

Timing is critical in M&A communication. Avoid rumors and leaks by carefully planning when and how you'll announce the merger or acquisition. Ensure that key stakeholders, including managers and department heads, are briefed in advance. Build out a “Day 1” timeline to ensure a thoughtful cascade of communications that will most efficiently and effectively reach all stakeholders, with employees receiving notification as early as legal and regulatory requirements allow.

6. Develop Resources

Make sure employees have access to resources to help them navigate the changes. This could include FAQs, dedicated email addresses for inquiries, and clear channels for reporting issues. Ensure frontline leaders are prepared by providing a toolkit that includes key messages, core slides to support their team meetings, FAQs, and tips for handling questions when you don’t have the answer.

More than written tools, conducting event run-throughs and potentially even leader communications training to ensure they are positioned to put their best foot forward and are consistent in how they speak about the M&A process will help prevent the need for issues management later.

7. Launch Employee Communications

Hold town hall meetings, webinars, or virtual town halls to tell employees about a merger or acquisition. Provide ample opportunities for questions and answers to address immediate concerns. Realizing that not everyone can attend a meeting at a single given time, think about recording and posting the video in a place where employees can access it later. For some companies, there may be value in holding two separate meetings to ensure shift workers or workers in different time zones all have an opportunity to engage.

8. Establish Ongoing Communication

M&A communication should be an ongoing process. Regular updates and check-ins, particularly with their direct managers, keep employees informed about the progress of the integration and any changes affecting them.

9. Monitor and Adjust

Gather feedback from employees and monitor the effectiveness of your communication efforts. Be prepared to adjust your approach if certain messages are not resonating or if issues persist.

How to Overcome Employee Resistance to a Merger or Acquisition

Even with the best-laid plans, employee resistance is a common challenge during M&A, and it can hinder the integration process. Addressing this resistance requires a well-thought-out approach grounded in principles of change management – an approach supported by McKinsey that found through ten years of data from annual surveys of M&A executives that only 38% of M&A deals achieve their objectives when change management is not adequately addressed.

From a communications perspective, that means developing a change communications plan guided by a commitment to transparency , employee involvement to reduce uncertainty and foster a sense of ownership, and leadership alignment. The latter of which is a critical, yet an all-to-often overlooked step that communicators have the power to facilitate at the earliest stage of the transaction.

This not only ensures communications and leadership are in lock step, but a KPMG study found that 91% of M&A deals with strong leadership alignment achieved or exceeded their financial targets. Ensuring that leadership teams from both organizations are aligned and communicate a shared vision for the future can serve as a powerful example to employees.

One additional consideration when looking at how communications can help address resistance is to partner with HR to develop a plan and associated communications around recognition and rewards with an eye to retaining top talent and motivating the transformation team when milestones on the M&A timeline are achieved . Mercer’s study offers affirmation of the impact of this approach, reporting that 67% of companies that recognized and rewarded employees during an M&A, which may include bonuses, promotions, or other incentives, reported successful integration.

How to Unify Company Cultures Through Mergers and Acquisitions

At the end of the day, successful M&A communications aren’t about a single moment in time, but rather the successful integration of the cultures of the two organizations. Cultural misalignment can be a significant source of friction during M&As that can lead to disruptions and even derail the entire deal. From a communications standpoint, there are steps you can take to address this challenge, including:

• Completing a Cultural Assessment. Begin by conducting a thorough cultural assessment of both organizations. Identify similarities and differences in values, norms, and behaviors. This assessment will guide your integration strategy.
• Developing a Cultural Integration Plan. Partner with HR and leadership to develop a detailed cultural integration plan that outlines how cultural differences will be addressed. Define a shared set of values and behaviors that align with the merged company's vision.
• Role Modeling by Leaders. By aligning leaders early on through discussions facilitated by the communications team and a consistent set of messages, they will be better equipped to embody the desired cultural changes and actively communicate and demonstrate these changes to employees. Their actions set the tone for the entire organization.
• Enabling Employee Involvement. Starting with the announcement and continuing as the priorities, values, and vision of the newly formed company are defined, encouraging employees to share their insights and suggestions improves outcomes, heightens morale, and makes for a stronger culture.

M&A Culture & Communications Case Study

Our team has facilitated a multi-month culture-integration process that incorporated a number of these tenants when two professional services firms closed on their merger of equals to become a Top 10 firm in its space. This marked the beginning of the most important work for the NewCo. Two legacy organizations needed to come together as one team with a shared purpose and culture that differentiates and reinforces why together is better.

Just weeks after the transaction closed, we led the firm on an important journey to define the culture of the NewCo and literally write the book on how to deliver an unmatched client experience – a pillar of the firm’s brand promise.

In less than four months, we engaged and facilitated task force teams to co-create and define a net-new NewCo purpose, mission, vision, and values. This marked the first time teams from the legacy firms worked together.

The initiative included writing and designing a 100-page book to unify the firm around its culture and guide everyone on how to deliver on the client experience, and developing key artifacts to unveil and roll out the NewCo culture at company-wide launch events and through ongoing communications. Additionally, together with company leadership, 100+ NewCo team members were identified and enlisted as champions to roll out the firm’s DNA at the annual partner meeting with more than 1,200 attendees.

The results spoke for themselves as the company:

• Gained buy-in from +1,500 NewCo team members who were part of the co-creation and engagement process.
• Transitioned from having team members associating by their legacy firm to collaborating together and identifying as One NewCo.
• Developed materials that are now used to teach and train team members across the firm, and for internal communications and marketing efforts.

The cumulative efforts gained positive feedback from clients and employees alike, who not only appreciate but also now embody the NewCo Way in all that they do.

Complexity Shouldn’t Mean Complacency

In the dynamic and competitive landscape of today's business world, M&A transactions are likely to continue as companies seek growth and strategic advantages. By understanding the importance of addressing employee concerns and cultural disparities, organizations can increase the odds of M&A success.

Embracing these strategies and adapting them to the unique needs of each M&A scenario will undoubtedly help you to achieve your desired business outcomes and further demonstrate the power of communications from the frontlines to the boardroom.

Have you identified and briefed on their charge the members who would form the cross-functional team that will lead your company through any future mergers or acquisitions?

— David Grossman

This quick guide covers a methodology you can use to transform leaders and employees from skeptical bystanders to inspired catalysts of change. Download Maximizing Strategy Development & Rollout with Top Leaders   today!

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The six types of successful acquisitions

There is no magic formula to make acquisitions successful. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, well-articulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague.

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Empirical analysis of specific acquisition strategies offers limited insight, largely because of the wide variety of types and sizes of acquisitions and the lack of an objective way to classify them by strategy. What’s more, the stated strategy may not even be the real one: companies typically talk up all kinds of strategic benefits from acquisitions that are really entirely about cost cutting. In the absence of empirical research, our suggestions for strategies that create value reflect our acquisitions work with companies.

In our experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following six archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be built in-house, exploiting a business’s industry-specific scalability, and picking winners early and helping them develop their businesses.

Six archetypes

An acquisition’s strategic rationale should be a specific articulation of one of these archetypes, not a vague concept like growth or strategic positioning, which may be important but must be translated into something more tangible. Furthermore, even if your acquisition is based on one of the archetypes below, it won’t create value if you overpay.

Improve the target company’s performance

Improving the performance of the target company is one of the most common value-creating acquisition strategies. Put simply, you buy a company and radically reduce costs to improve margins and cash flows. In some cases, the acquirer may also take steps to accelerate revenue growth.

Pursuing this strategy is what the best private-equity firms do. Among successful private-equity acquisitions in which a target company was bought, improved, and sold, with no additional acquisitions along the way, operating-profit margins increased by an average of about 2.5 percentage points more than those at peer companies during the same period. 1 1. Viral V. Acharya, Moritz Hahn, and Conor Kehoe, “Corporate governance and value creation: Evidence from private equity,” Social Science Research Network working paper, February 19, 2010. This means that many of the transactions increased operating-profit margins even more.

Keep in mind that it is easier to improve the performance of a company with low margins and low returns on invested capital (ROIC) than that of a high-margin, high-ROIC company. Consider a target company with a 6 percent operating-profit margin. Reducing costs by three percentage points, to 91 percent of revenues, from 94 percent, increases the margin to 9 percent and could lead to a 50 percent increase in the company’s value. In contrast, if the operating-profit margin of a company is 30 percent, increasing its value by 50 percent requires increasing the margin to 45 percent. Costs would need to decline from 70 percent of revenues to 55 percent, a 21 percent reduction in the cost base. That might not be reasonable to expect.

Consolidate to remove excess capacity from industry

As industries mature, they typically develop excess capacity. In chemicals, for example, companies are constantly looking for ways to get more production out of their plants, even as new competitors, such as Saudi Arabia in petrochemicals, continue to enter the industry.

The combination of higher production from existing capacity and new capacity from recent entrants often generates more supply than demand. It is in no individual competitor’s interest to shut a plant, however. Companies often find it easier to shut plants across the larger combined entity resulting from an acquisition than to shut their least productive plants without one and end up with a smaller company.

Reducing excess in an industry can also extend to less tangible forms of capacity. Consolidation in the pharmaceutical industry, for example, has significantly reduced the capacity of the sales force as the product portfolios of merged companies change and they rethink how to interact with doctors. Pharmaceutical companies have also significantly reduced their R&D capacity as they found more productive ways to conduct research and pruned their portfolios of development projects.

While there is substantial value to be created from removing excess capacity, as in most M&A activity the bulk of the value often accrues to the seller’s shareholders, not the buyer’s. In addition, all the other competitors in the industry may benefit from the capacity reduction without having to take any action of their own (the free-rider problem).

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Accelerate market access for the target’s (or buyer’s) products.

Often, relatively small companies with innovative products have difficulty reaching the entire potential market for their products. Small pharmaceutical companies, for example, typically lack the large sales forces required to cultivate relationships with the many doctors they need to promote their products. Bigger pharmaceutical companies sometimes purchase these smaller companies and use their own large-scale sales forces to accelerate the sales of the smaller companies’ products.

IBM, for instance, has pursued this strategy in its software business. Between 2010 and 2013, IBM acquired 43 companies for an average of $350 million each. By pushing the products of these companies through IBM’s global sales force, IBM estimated that it was able to substantially accelerate the acquired companies’ revenues, sometimes by more than 40 percent in the first two years after each acquisition. 2 2. IBM investor briefing 2014, ibm.com.

In some cases, the target can also help accelerate the acquirer’s revenue growth. In Procter & Gamble’s acquisition of Gillette, the combined company benefited because P&G had stronger sales in some emerging markets, Gillette in others. Working together, they introduced their products into new markets much more quickly.

Get skills or technologies faster or at lower cost than they can be built

Many technology-based companies buy other companies that have the technologies they need to enhance their own products. They do this because they can acquire the technology more quickly than developing it themselves, avoid royalty payments on patented technologies, and keep the technology away from competitors.

For example, Apple bought Siri (the automated personal assistant) in 2010 to enhance its iPhones. More recently, in 2014, Apple purchased Novauris Technologies, a speech-recognition-technology company, to further enhance Siri’s capabilities. In 2014, Apple also purchased Beats Electronics, which had recently launched a music-streaming service. One reason for the acquisition was to quickly offer its customers a music-streaming service, as the market was moving away from Apple’s iTunes business model of purchasing and downloading music.

Cisco Systems, the network product and services company (with $49 billion in revenue in 2013), used acquisitions of key technologies to assemble a broad line of network-solution products during the frenzied Internet growth period. From 1993 to 2001, Cisco acquired 71 companies, at an average price of approximately $350 million. Cisco’s sales increased from $650 million in 1993 to $22 billion in 2001, with nearly 40 percent of its 2001 revenue coming directly from these acquisitions. By 2009, Cisco had more than $36 billion in revenues and a market cap of approximately $150 billion.

Exploit a business’s industry-specific scalability

Economies of scale are often cited as a key source of value creation in M&A. While they can be, you have to be very careful in justifying an acquisition by economies of scale, especially for large acquisitions. That’s because large companies are often already operating at scale. If two large companies are already operating that way, combining them will not likely lead to lower unit costs. Take United Parcel Service and FedEx, as a hypothetical example. They already have some of the largest airline fleets in the world and operate them very efficiently. If they were to combine, it’s unlikely that there would be substantial savings in their flight operations.

Economies of scale can be important sources of value in acquisitions when the unit of incremental capacity is large or when a larger company buys a subscale company. For example, the cost to develop a new car platform is enormous, so auto companies try to minimize the number of platforms they need. The combination of Volkswagen, Audi, and Porsche allows all three companies to share some platforms. For example, the VW Toureg, Audi Q7, and Porsche Cayenne are all based on the same underlying platform.

Some economies of scale are found in purchasing, especially when there are a small number of buyers in a market with differentiated products. An example is the market for television programming in the United States. Only a handful of cable companies, satellite-television companies, and telephone companies purchase all the television programming. As a result, the largest purchasers have substantial bargaining power and can achieve the lowest prices.

While economies of scale can be a significant source of acquisition value creation, rarely are generic economies of scale, like back-office savings, significant enough to justify an acquisition. Economies of scale must be unique to be large enough to justify an acquisition.

Pick winners early and help them develop their businesses

The final winning strategy involves making acquisitions early in the life cycle of a new industry or product line, long before most others recognize that it will grow significantly. Johnson & Johnson pursued this strategy in its early acquisitions of medical-device businesses. J&J purchased orthopedic-device manufacturer DePuy in 1998, when DePuy had $900 million of revenues. By 2010, DePuy’s revenues had grown to $5.6 billion, an annual growth rate of about 17 percent. (In 2011, J&J purchased Synthes, another orthopedic-device manufacturer, so more recent revenue numbers are not comparable.) This acquisition strategy requires a disciplined approach by management in three dimensions. First, you must be willing to make investments early, long before your competitors and the market see the industry’s or company’s potential. Second, you need to make multiple bets and to expect that some will fail. Third, you need the skills and patience to nurture the acquired businesses.

Harder strategies

Beyond the six main acquisition strategies we’ve explored, a handful of others can create value, though in our experience they do so relatively rarely.

Roll-up strategy

Roll-up strategies consolidate highly fragmented markets where the current competitors are too small to achieve scale economies. Beginning in the 1960s, Service Corporation International, for instance, grew from a single funeral home in Houston to more than 1,400 funeral homes and cemeteries in 2008. Similarly, Clear Channel Communications rolled up the US market for radio stations, eventually owning more than 900.

This strategy works when businesses as a group can realize substantial cost savings or achieve higher revenues than individual businesses can. Service Corporation’s funeral homes in a given city can share vehicles, purchasing, and back-office operations, for example. They can also coordinate advertising across a city to reduce costs and raise revenues.

Size is not what creates a successful roll-up; what matters is the right kind of size. For Service Corporation, multiple locations in individual cities have been more important than many branches spread over many cities, because the cost savings (such as sharing vehicles) can be realized only if the branches are near one another. Roll-up strategies are hard to disguise, so they invite copycats. As others tried to imitate Service Corporation’s strategy, prices for some funeral homes were eventually bid up to levels that made additional acquisitions uneconomic.

Consolidate to improve competitive behavior

Many executives in highly competitive industries hope consolidation will lead competitors to focus less on price competition, thereby improving the ROIC of the industry. The evidence shows, however, that unless it consolidates to just three or four companies and can keep out new entrants, pricing behavior doesn’t change: smaller businesses or new entrants often have an incentive to gain share through lower prices. So in an industry with, say, ten companies, lots of deals must be done before the basis of competition changes.

Enter into a transformational merger

A commonly mentioned reason for an acquisition or merger is the desire to transform one or both companies. Transformational mergers are rare, however, because the circumstances have to be just right, and the management team needs to execute the strategy well.

Transformational mergers can best be described by example. One of the world’s leading pharmaceutical companies, Switzerland’s Novartis, was formed in 1996 by the $30 billion merger of Ciba-Geigy and Sandoz. But this merger was much more than a simple combination of businesses: under the leadership of the new CEO, Daniel Vasella, Ciba-Geigy and Sandoz were transformed into an entirely new company. Using the merger as a catalyst for change, Vasella and his management team not only captured $1.4 billion in cost synergies but also redefined the company’s mission, strategy, portfolio, and organization, as well as all key processes, from research to sales. In every area, there was no automatic choice for either the Ciba or the Sandoz way of doing things; instead, the organization made a systematic effort to find the best way.

Novartis shifted its strategic focus to innovation in its life sciences business (pharmaceuticals, nutrition, and products for agriculture) and spun off the $7 billion Ciba Specialty Chemicals business in 1997. Organizational changes included structuring R&D worldwide by therapeutic rather than geographic area, enabling Novartis to build a world-leading oncology franchise.

Across all departments and management layers, Novartis created a strong performance-oriented culture supported by shifting from a seniority- to a performance-based compensation system for managers.

The final way to create value from an acquisition is to buy cheap—in other words, at a price below a company’s intrinsic value. In our experience, however, such opportunities are rare and relatively small. Nonetheless, although market values revert to intrinsic values over longer periods, there can be brief moments when the two fall out of alignment. Markets, for example, sometimes overreact to negative news, such as a criminal investigation of an executive or the failure of a single product in a portfolio with many strong ones.

Such moments are less rare in cyclical industries, where assets are often undervalued at the bottom of a cycle. Comparing actual market valuations with intrinsic values based on a “perfect foresight” model, we found that companies in cyclical industries could more than double their shareholder returns (relative to actual returns) if they acquired assets at the bottom of a cycle and sold at the top. 3 3. Marco de Heer and Timothy Koller, “ Valuing cyclical companies ,” McKinsey Quarterly , May 2000.

While markets do throw up occasional opportunities for companies to buy targets at levels below their intrinsic value, we haven’t seen many cases. To gain control of a target, acquirers must pay its shareholders a premium over the current market value. Although premiums can vary widely, the average ones for corporate control have been fairly stable: almost 30 percent of the preannouncement price of the target’s equity. For targets pursued by multiple acquirers, the premium rises dramatically, creating the so-called winner’s curse. If several companies evaluate a given target and all identify roughly the same potential synergies, the pursuer that overestimates them most will offer the highest price. Since it is based on an overestimation of the value to be created, the winner pays too much—and is ultimately a loser. 4 4. K. Rock, “Why new issues are underpriced,” Journal of Financial Economics , 1986, Volume 15, pp. 187–212. A related problem is hubris, or the tendency of the acquirer’s management to overstate its ability to capture performance improvements from the acquisition. 5 5. R. Roll, “The hubris hypothesis of corporate takeovers,” Journal of Business , 1986, Volume 59, Number 2, pp. 197–216.

Since market values can sometimes deviate from intrinsic ones, management must also beware the possibility that markets may be overvaluing a potential acquisition. Consider the stock market bubble during the late 1990s. Companies that merged with or acquired technology, media, or telecommunications businesses saw their share prices plummet when the market reverted to earlier levels. The possibility that a company might pay too much when the market is inflated deserves serious consideration, because M&A activity seems to rise following periods of strong market performance. If (and when) prices are artificially high, large improvements are necessary to justify an acquisition, even when the target can be purchased at no premium to market value.

By focusing on the types of acquisition strategies that have created value for acquirers in the past, managers can make it more likely that their acquisitions will create value for their shareholders.

Marc Goedhart is a senior expert in McKinsey’s Amsterdam office, Tim Koller is a partner in the New York office, and David Wessels, an alumnus of the New York office, is an adjunct professor of finance and director of executive education at the University of Pennsylvania’s Wharton School. This article, updated from the original, which was published in 2010, is excerpted from the sixth edition of Valuation: Measuring and Managing the Value of Companies , by Marc Goedhart, Tim Koller, and David Wessels (John Wiley & Sons, 2015).

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What Is Merger and Acquisition (M&A)?

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

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Table of contents, what are mergers and acquisitions (m&a).

Mergers and acquisitions (M&A) is the consolidation of companies or assets through various financial transactions.

In a merger, two or more companies merge their operations and become one entity. On the other hand, in an acquisition, one company acquires another company, and the acquired company becomes a subsidiary of the acquiring company.

Mergers and acquisitions are often pursued for various reasons. This could be for expanding market share, achieving economies of scale, diversifying operations, and gaining access to new technologies or markets.

These transactions can also be used to increase profits by eliminating redundancies, reducing costs, and increasing revenue streams.

Mergers and acquisitions can take many forms, including horizontal mergers where two companies in the same industry combine their operations, and vertical mergers where a company acquires a supplier or a customer, among others.

The M&A process involves several steps, including identifying potential targets, conducting due diligence, negotiating the terms of the transaction, obtaining regulatory approvals , and integrating the companies after the merger or acquisition is complete.

Reasons for Mergers and Acquisitions (M&A)

There are several reasons why companies engage in M&A:

One of the primary reasons companies pursue M&A is to achieve growth. Acquiring or merging with another company allows businesses to increase their size, market presence, and revenue streams. They can acquire established brands and distribution networks.

This can be particularly useful for companies that have reached a plateau in their growth trajectory or those looking to expand into new markets. M&A can provide a faster and more efficient path to growth than organic expansion, which can be slow and costly.

Diversification

Diversification permits a company in a different industry or product line to reduce its dependence on a single market or product, thereby spreading its risk and increasing its resilience to economic downturns.

Moreover, diversification can also provide companies with a competitive advantage. By offering a wider range of products or services, companies can differentiate themselves from competitors and build stronger customer relationships .

When two companies merge, they can leverage their complementary strengths to create value that is greater than the sum of their parts. This can be achieved through cost savings, improved efficiency, and the ability to offer a wider range of products or services to customers.

Merging companies can eliminate redundant functions, consolidate operations, and reduce overhead costs . In addition, combining purchasing power and negotiating better deals with suppliers can lead to lower costs for raw materials, components, and other inputs.

Market Share

Acquiring a competitor is a common strategy for companies looking to increase their market share and gain a competitive advantage. This can be particularly beneficial in industries with high barriers to entry or limited growth prospects.

Companies can achieve economies of scale and improve their bargaining power with suppliers and customers. Eliminating a competitor increases a company's share of the market and reduces competition, which can lead to higher pricing power and increased profitability.

Profitability

Companies can acquire a company that is more profitable or has higher margins to increase their earnings and improve their financial performance. This provides access to new markets, customers, and product lines, which can create new growth opportunities and increase revenue.

Lower costs, such as those resulting from higher productivity, can lead to an increase in profits. As a result, consumers may benefit from lower prices, leading to an overall improvement in economic welfare.

Types of Mergers and Acquisitions (M&A)

The following lists the different types of mergers and acquisitions:

In essence, other corporate entities are integrated into an existing entity. This can be beneficial for smaller companies that merge into larger companies with stronger brand recognition and greater market traction.

Acquisition

Acquisition is a type of business merger that takes place when one company purchases a majority or all of another company's shares. When a company acquires more than 50% of the target company's shares, it gains control of the company.

Consolidation

Consolidation involves merging the core businesses of two companies and forming a new one. The shareholders of both companies must give their approval. Once approved, they receive common equity shares in the new company, and the old corporate structures are abandoned.

Tender Offer

A tender offer is a transaction where one company offers a premium price to the shareholders in order to acquire a controlling stake in the company.

The acquiring company directly communicates the offer to the shareholders of the target company, thereby bypassing the involvement of the management and board of directors.

Acquisition of Assets

This happens when one company purchases a specific set of assets from another company. This type of M&A is often used to acquire specific technologies, intellectual property, or other assets that are strategically important to the acquiring company.

Management Acquisition

Also known as Management buyout (MBO), this is a form of acquisition in which a group led by the current management of a company acquires a majority of the company's shares from existing shareholders, resulting in the management taking control of the company.

Forms of Mergers

The list below presents the various forms of mergers:

Horizontal Merger

This happens when two companies in the same industry or sector merge, typically with the aim of achieving economies of scale, increasing market share, and reducing competition.

This type of merger is common in mature and consolidated industries, such as the automotive or telecommunications industry.

Vertical Merger

Vertical mergers, on the other hand, occur when companies in different stages of the same supply chain merge.

For example, a car manufacturer merges with a tire producer. This type of merger aims to streamline production processes, reduce costs, and increase control over the supply chain.

Congeneric Merger

Congeneric mergers involve companies that are in the same general industry but with different product lines. This type of merger aims to leverage complementary strengths and combine product lines to enhance market penetration and customer reach.

Conglomerate Merger

Conglomerate mergers involve companies from different industries that have little to no overlap. The objective of this type of merger is often to diversify the portfolio of the acquiring company, reducing risks and increasing resilience to economic downturns.

Reverse Merger

A reverse merger enables a private company to become public without incurring the expensive costs and regulatory requirements associated with an initial public offering (IPO) . They acquire or merge with a pre-existing public company and install their own management team.

Accretive Merger

Accretive mergers increase the earnings per share of the acquiring company. The profits generated by the company being acquired increase the market value of the acquiring company. However, whether the transaction is considered accretive or not can change as time goes on.

Dilutive Merger

Dilutive mergers are the opposite of accretive mergers in that the transaction decreases the earnings per share of the acquiring company.

This merger sacrifices short-term profitability to create value in the long run, such as when a slow-growing company buys a high-growth company.

Valuing Mergers and Acquisitions (M&A)

Valuing a target company is an essential aspect of the process. There are various methods that can be used to determine the value of a company.

Price-To-Earnings Ratio (P/E Ratio)

The P/E Ratio results indicate the number of years it would take for the acquiring company to recover its investment . It provides an indication of the market's expectations of the future earnings potential of a company.

A high P/E Ratio typically indicates that the market expects the company's earnings to grow significantly in the future, while a low P/E Ratio may indicate that the market is pessimistic about the company's future earnings potential.

Enterprise-Value-To-Sales Ratio (EV/Sales)

This method allows the acquiring company to see the amount it pays per dollar of sales. This determines whether a company is overvalued or undervalued based on its revenue.

The EV/Sales ratio can also be used as a quick and simple measure of a company's valuation in comparison to others in the same industry. However, it does not take into account factors such as profit margins , growth prospects, and other financial metrics.

Discounted Cash Flow (DCF)

DCF involves projecting future cash flows and discounting them to their present value, taking into account the time value of money . This method is more complex and takes into consideration the company's growth rate, cost of capital , and other factors that may impact future cash flows.

It is widely regarded as the most accurate method of valuing companies, but it requires a higher degree of analysis and judgment, and its accuracy is highly dependent on the assumptions made about future cash flows.

Replacement Cost

Sometimes, acquisitions are based on the cost of replacing the target company. Assuming that the value of a company is equal to the sum of all its equipment and staffing costs, then the acquiring company estimates the cost of replacing assets or rebuilding a company from scratch.

The approach of setting a price based on equipment and staffing costs would be less applicable in a service industry, where the primary assets such as people and ideas are difficult to evaluate and cultivate.

Mergers and Acquisitions (M&A) Process

The M&A process involves several phases:

Assessment and Preliminary Review

The first phase of the M&A process involves an assessment of the acquiring company's strategic goals, target market, and potential acquisition targets.

This phase includes a preliminary review of potential targets to determine whether they meet the company's acquisition criteria.

On the other hand, if no buyer has been identified, it is common practice to start with an information memorandum. The vendor typically creates the memorandum to gauge market interest and sell their company.

Deal Structuring and Negotiation

Once a potential target has been identified, the second phase involves deal structuring and negotiation. This phase also involves determining the deal structure, price, terms of the transaction, assessing competition, and antitrust law implications.

Additionally, parties may review employment law considerations, licensing matters, and the fiscal implications of the transaction, among other relevant factors.

It is also common for the potential purchaser and vendor to draft a letter of intent outlining proposed terms and conditions.

Due Diligence

This phase involves a detailed review of the target company's financial, legal, and operational information. Due diligence helps to identify liabilities and synergies associated with the transaction.

During the due diligence phase, which may cover legal, financial, and fiscal areas, the primary objective is to identify significant risks that may arise from the potential merger or acquisition. This exercise is conducted to determine fair pricing and increase bargaining power.

Signing and Closing

The fourth phase includes drafting and executing the purchase agreement, financing the transaction, and obtaining regulatory approvals. The timing, legal compliance, and communication with stakeholders must be considered.

Warranty, indemnity, and limitation details must be disclosed. Working with legal and financial advisors in the drafting and review process and creating a detailed plan for post-closing integration is recommended.

Post-Merger Integration

Post-merger integration involves integrating the target company into the acquiring company's operations, culture, and systems. They should identify and address cultural differences, manage employee and stakeholder expectations, and realize synergies.

A detailed integration plan, appointing a dedicated integration team, and communicating transparently with stakeholders should be part of the process. Additionally, it is important to consider the tax implications and regulatory requirements.

Challenges and Risks of Mergers and Acquisitions (M&A)

In order to guarantee a successful transaction, it is important to understand these challenges and risks and develop strategies to mitigate them.

Communication Challenges

It is essential that both parties communicate effectively throughout the process to ensure that there is a shared understanding of the transaction, its goals, and the potential risks involved. Failure to do so can result in misunderstandings, delays, and, ultimately, a failed deal.

During mergers and acquisitions, employees and management are often not given enough information about the process, causing fear and uncertainty. This lack of transparency creates a sense of distrust and uncertainty in the workplace.

Employee Retention

When two companies merge, there can be a sense of doubt among employees, leading to anxiety and fear about job security. Companies must ensure that they have a comprehensive plan in place to communicate with employees and provide support during the transition period.

Employees tend to lose faith and perceive their leaders as having betrayed them. It is crucial to keep employee turnover to a minimum during the merger process to ensure business continuity and reap the rewards of the merger.

Cultural Risks

Cultural risks are also a major challenge. Two companies with different cultures cause clashes that lead to decreased morale and lower productivity. M&A often results in changes to management practices and strategies, which can have adverse effects on employees.

Cultural differences should be identified early on in the process, and develop strategies to align the two cultures. This can include creating a cross-functional team, developing a plan to integrate the two cultures, and providing training to employees on the new culture.

Benefits of Mergers and Acquisitions (M&A)

Mergers and acquisitions can offer a variety of benefits to companies:

Economies of Scale

Combining operations and resources allow companies to increase efficiency and reduce costs. This can result in higher profit margins and improved competitiveness in the market. This enables them to achieve and realize economic gains and economies of scale .

Due to the reduced costs, companies can lower their prices, making their products or services more affordable and attractive to customers. This leads to an increased market share and higher sales volume.

Another benefit of M&A is the potential for synergies. By bringing together complementary strengths and capabilities, companies can create new opportunities for innovation and growth. This can lead to the development of new products or services.

Synergies are achieved through the integration of similar business processes, sharing of best practices, and elimination of redundant costs. This results in greater efficiency and productivity, ultimately leading to cost savings.

Market Expansion

M&A can also enable companies to expand their market reach. Companies can enter new markets and reach new customers by acquiring or merging with a company in a different geographic region or industry. This can help to diversify their revenue streams.

This reduces the risks and costs associated with entering a new market from scratch. M&A can also provide access to new distribution channels, suppliers, and partners that can further enhance a company's market expansion strategy.

Increased Market Power

Finally, M&A can increase market power by consolidating market share. This can result in greater pricing power and improved profitability. After all, competing against larger companies can be more challenging.

In addition, companies can benefit from reduced competition, which can lead to higher profit margins and increased trading power. Companies can invest more in research and development, marketing, and other areas to stay ahead of the competition.

Final Thoughts

Mergers and acquisitions involve combining companies or assets through different financial transactions. Mergers and acquisitions play a significant role in shaping the business landscape and can have far-reaching implications for companies, investors, and consumers.

Companies engage in M&A for various reasons, such as growth diversification and competitive advantage. There are different ways for companies to combine. This can be through a merger, acquisition, consolidation tender offer, or management acquisition.

The form of merger also varies depending on the needs of the companies. They could engage in a horizontal merger, vertical merger, congeneric merger, or conglomerate merger, among others. Companies should carefully consider their options before moving forward.

Valuing the companies or assets involved in an M&A transaction is a critical step in determining success. They can use the price-to-earnings ratio, enterprise-value-to-sales ratio, discounted cash flow, or replacement cost.

The process of merging involves a great deal of legal and financial considerations. Companies should work with financial advisors and review the terms of the merger agreement to ensure that their interests are protected.

M&A deals can lead to numerous benefits for companies, including increased economies of scale, cost savings, synergies, market expansion, and increased market power. However, they should also be aware of the risks involved.

Proceeding with M&A poses communication challenges, employee retention issues, and cultural risks. These concerns should be addressed early on to ensure and maximize the success of the transaction.

Mergers and Acquisitions (M&A) FAQs

What is the difference between a merger and an acquisition.

A merger is a type of business combination where two companies come together to integrate each other in their company. In contrast, an acquisition is a transaction where one company buys another company to either combine or operate separately.

What are some common reasons for companies to merge or acquire another company?

Companies engage in M&A for various reasons, such as growth diversification, synergy, increased market share, and profitability.

How does a company determine the value of another company in a merger or acquisition?

When considering a merger or acquisition, determining the value of the target company is crucial. There are several methods used to assess the value of a company, including the Price-To-Earnings Ratio (P/E Ratio), Enterprise-Value-To-Sales Ratio (EV/Sales), Discounted Cash Flow (DCF), and Replacement Cost.

What are some potential risks for companies involved in a merger or acquisition?

The potential risks include communication problems, concerns about employee retention, and dealing with cultural differences between the two organizations.

How can shareholders be affected by a merger or acquisition?

The acquiring company may offer to buy the target company's shares at a premium, resulting in a windfall for shareholders of the target company. However, in other cases, the acquiring company may use its own shares as currency to pay for the acquisition, which could dilute the value of the target company's shares. Additionally, the announcement of a merger or acquisition can lead to significant fluctuations in the share prices of both the acquiring and target companies, which can result in gains or losses for shareholders.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

• Golden Parachutes
• Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act)
• Holding Company
• M&A Advisory Firm
• Special Purpose Acquisition Company (SPAC)

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• Luxury Lifestyle: $8,000+

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• Getting out of debt
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• Tax planning expertise
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10 Benefits of Mergers and Acquisitions You Should Know

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

Few firms reach the very top without conducting at least a few M&A transactions.

And the fact that the most successful firms in the world employ teams of professionals whose only role is to seek out attractive potential acquisitions tells its own story.

Implemented well, an active mergers and acquisitions strategy can be a highly fruitful process for any company.

At DealRoom we work with dozens of companies helping organize their M&A process and below, we look at 10 of the biggest benefits of such a strategy.

10 Benefits and Advantages of Mergers and Acquisitions

• Economies of Scale
• Economies of Scope
• Synergies in Mergers and Acquisitions
• Benefit in Opportunistic Value Generation
• Increased Market Share
• Higher Levels of Competition
• Access to Talent
• Diversification of Risk
• Faster Strategy Implementation
• Tax Benefits

1. Economies of Scale

Underpinning all M&A activity is the promise of economies of scale. The benefits that will come from becoming bigger:

• Increased access to capital,
• lower costs as a result of higher volume,
• better bargaining power with distributors, and more.

While buyers should always avoid the temptation to indulge in ‘ empire building ,’ as a general rule, bigger companies usually enjoy advantages that small companies do not.

2. Economies of Scope

Mergers and acquisitions bring economies of scope that aren’t always possible through organic growth. One only has to look at Facebook to see that this is the case.

Despite providing users with the ability to share photos and contact friends within its platform, it still acquired Instagram and Whatsapp.

Economies of scope thus allow companies to tap into the demand of a much larger client base.

3. Synergies

Synergies are typically described as ‘ one plus one equalling three ’: the value that comes from two companies working together in tandem to make something far more powerful.

An example is provided by Disney acquiring Lucasfilm. Lucasfilm was already a huge cash generator through the Star Wars franchise, but Disney can add theme park rides, toys, and merchandise to the customer offering.

Why You Should Focus Less on Cost Synergies During PMI

4. opportunistic value generation.

Some of the best deals happen when a company isn't even actively pursuing an acquisition.

The hallmark of these acquisitions is that the purchase price is less than the fair market value of the target company’s net assets .

Often these companies will be in some financial distress, but a deal can be made to keep the company afloat while the buyer benefits from adding immediate value as a direct consequence of the transaction.

5. Increased Market Share

One of the more common motives for undertaking M&A is increased market share.

Historically, retail banks have looked at geographical footprint as being key to achieving market share and as a result, there has always been a high level of industry consolidation in retail banking (most countries have a group of “ Big Four ” retail banks.

A good example is provided by the Spanish retail bank Santander, which has made the acquisition of smaller banks an active policy, allowing it to become one of the largest retail banks in the world.

6. Higher Levels of Competition

The larger the company, in theory, the more competitive it becomes.

Again, this is essentially one of the benefits of economies of scale: being bigger allows you to compete for more.

To take an example: there are currently dozens of upstart companies entering the plant-based meat market, offering a range of vegetable-based ‘ meats’ .

But when P&G or Nestle begin to focus on this market, many of the upstarts will fall away, unable to compete with these behemoths.

7. Access to Talent

Ask anybody in the recruitment industry where the biggest talent shortages currently are, and the answer will invariably be a variant of ‘ people that can code ’.

Why is this?

Firstly, because of the huge demand for coders in the so-called fourth industrial revolution. But also because all of the best coders are working for large silicon valley technology companies.

The biggest always have access to the best talent. That’s as true for every other industry as it is for technology.

8. Diversification of Risk

This goes hand-in-hand with economies of scope: By having more revenue streams, it follows that a company can spread risk across those revenue streams, rather than having it focus on just one.

To return to the example of Facebook: Some analysts suggest that younger eyeballs are turning away from the social media giant towards other forms of social media… Instagram and Whatsapp are among them.

When one revenue stream falls, an alternative stream of revenue may hold, or even pick up, diversifying the acquiring company’s risk in the process.

9. Faster Strategy Implementation

Mergers and Acquisitions may be the best way to make a long-term strategy become a mid-term strategy. Suppose a company wants to enter the Canadian market; it could build from the ground up and hope that it reached the desirable scale in five to ten years.

Or it could be a business, its client base, distribution, and brand value and benefit from them all upon closing of the acquisition.

This also goes for areas like new product development and R&D, where an organic strategy can rarely match the speed provided by M&A.

10. Tax Benefits

Acquisitions can sometimes bring tax benefits if the target company is in a strategic industry or a country with a favorable tax regime.

The example of US pharmaceutical companies looking at smaller Irish companies and moving their headquarters to Ireland to avail of its lower tax base is a case in point. This is referred to as a ‘ tax inversion ’ deal.

The most well-documented version was a proposed $160 billion merger between Pfizer and Allergan in 2016, subsequently scuppered by US government intervention.

As this list shows, there are numerous benefits to good acquisitions .

And what’s more, the better constructed the deal, the more these benefits are likely to arise.

Anybody looking to put an M&A strategy into practice should consider which of these benefits they’re most looking for from the acquisition when thinking about their motives for buying.

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

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First Published: Sep 04 2024 | 11:44 AM IST

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