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Best Practices for Merger and Acquisition (M&A)

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One of the best ways to grow and gain market share is through a merger or acquisition. Earlier, Anand Jayapalan had discussed that mergers take place when two or more business entities are combined to create a new, joint entity. On the other hand, acquisitions occur when one entity is taken over by another. While each merger and acquisition (M&A) is individually unique and should be managed as such, there are a few best practices that one should follow:

  • Identify strategic fit at the outset: Successful M&A transactions would be next to impossible in the absence of a strategic fit. It is prudent for companies to effectively identify targets that align with their strategic objectives and complement their business operations, so that they can be seamlessly integrated.
  • Ensure clear communication throughout: Due to the nature of mergers and acquisitions, these deals affect both internal and external stakeholders. Ensuring good communication during M&A deals from the outset is important to lower the chances of any uncertainty or confusion, and foster trust among discerning stakeholders. Improved communication also ensures increased sharing of ideas.
  • Conduct thorough due diligence: Due diligence is vital to any M&A process. Even if it delays the transaction, due diligence cannot be rushed. The due diligence process should assess every aspect of the business, right from its intellectual property and technology to human resources and finances.  Due diligence helps ensure more informed decision-making, and makes it easier to discover the intrinsic value of the target company.
  • Assign metrics and responsibilities: Ensuring the extraction of value in M&A transactions can be achieved through measurable means. Event studies, which analyze stock price movements before and after a transaction, provide valuable insights, but a comprehensive assessment should extend beyond these studies to encompass various metrics tracking the deal’s progress. To facilitate this, assigning responsibility for each metric to specific individuals is imperative.
  • Be cognizant of the risks before they arrive: While risks are not uncommon in M&A, it is much easier to deal with them if they are pre-empted. The best practice for risk management in M&A is to create a comprehensive list of the risks that could arise during the process. These risks can range from compromised data security to unwelcome disclosures during the legal element of due diligence. For every situation, it would be a good idea to develop a sense of what actions will be taken if any of the outlined risks do materialize.
  • Value people: Irrespective of the company’s size or industry, prioritizing employee well-being is a smart approach during M&A activities. Implementing change management proves to be effective in many cases, as it involves addressing people’s apprehensions regarding the deal, the newly formed entity, and their roles within it. By dedicating efforts to manage these concerns and investing in the welfare of human resources, there is an opportunity to unleash the potential of employees who may have been undervalued in the past.

Earlier, Anand Jayapalan had underlined that while ambitious timelines are important in M&A, it is also vital to stay flexible. For instance, even if the goal is to close a transaction within six months, in case the due diligence provides insights that require further investigation, the timeline must be extended.

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