CEO of eCapital, a fast-growing fintech firm transforming financing for small to mid-size companies.
When done right, mergers and acquisitions (M&As) can profoundly affect your business. McKinsey shared that CEOs with a “programmatic approach to M&A are 1.2 times more likely to deliver peer-beating returns and successfully unlock the key growth pathways of expanding the core, innovating into adjacencies, and igniting breakout businesses.”
However, is it right for you? Determining whether an M&A strategy is right for your small or medium-sized business (SMB) can be difficult. Still, it’s a crucial decision that could ultimately help your company grow and succeed.
Even though we’re in a period of market uncertainty, a survey from Deloitte (via CFO) found that 63% of organizations are preparing for an M&A deal in 2023. I’m not surprised by this number; M&A is a strategy I have repeatedly employed to grow my company successfully, and a down market is often an ideal time for deals. Throughout my career, I’ve led over two dozen successful acquisitions, and I’ve learned that there are several key factors to consider before pursuing a merger or acquisition.
Clarify Your Business Goals and Objectives
The first step to determining if you should embark on M&A activity is to define your business goals and objectives. Once you know where you want to go, evaluate whether it could get you there and precisely what type of deal will help you achieve your goals. For example, if your primary objective is to increase market share, it could be worth considering an acquisition to expand your customer base and geographic reach.
Evaluate Your Financial Position
It’s critical to assess your ability to finance a deal. It’s time to scrutinize your financial position to determine what you can afford and what financing options are available. Buyers can use cash, debt, equity, stock swaps, mezzanine financing, leveraged buyout, seller financing or a combination of these to pay the purchase price and M&A costs of the company they are acquiring. If you don’t have enough cash on hand, consider how you would secure funding from outside sources.
Consider The Risks
There are inherent risks with any M&A activity, so you need to determine your tolerance. Potential risks include cultural clashes between the two companies, the possibility of losing key employees, and the challenge of integrating systems and processes. It’s up to you and your team to determine how comfortable you are with these risks based on how they might affect your business.
Identify And Vet Potential Acquisition Targets
If you’ve determined that M&A aligns with your business goals and you’re in the right financial position, and if you’ve considered the risks involved, it might be the right strategy for you. It’s time to research and identify potential acquisition targets to help you achieve your objectives.
There is a lot that goes into the researching and vetting process, but you can start by looking for companies that have complementary strengths, services or products to your business and could help you grow into new areas, gain market share and offer more to your customers. Of course, you’ll want to conduct thorough due diligence to ensure the company is financially sound and that there are no hidden liabilities or risks.
Seek Expert Advice
M&A is a team sport; you can’t do it alone. It’s essential to seek advice from experts and those in your network. This is critical once you are considering a deal but also helpful while you are determining if it is the right strategy for you.
Your team can include an M&A advisor to help you navigate the complexities of the deal-making process, legal and financial experts to ensure the deal is structured in a way that maximizes your benefits and minimizes your risks, and peers or mentors in your network who have done these deals in the past or know your industry and could have insights to share.
Overall, M&A can be a great avenue for SMBs to achieve their growth objectives. Carefully evaluating your business goals, finances and risks will help you determine if this strategy is right for you and your business. Doing your research due diligence and seeking advice will help increase your chances of success.
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