The phase model of an M & A transaction
If companies want to grow, they can buy others. The M & A process takes place in three phases: preparation phase, transaction phase and integration phase. Especially in preparation and integration the biggest mistakes happen.
For companies, the merger with another company or the purchase of such an (M & A) is important when there are few opportunities for their own, original growth. Who takes over a competitor, creates new potential in the market, wins new customers or benefits from its know-how. Some of them also solve the succession regulation in their company.
Mergers and Acquisitions
Mergers to Acquisitions (M & A) is the English term for mergers and acquisitions of companies. This collective term refers to corporate transactions in which companies merge or one company is bought and integrated by another. In addition, M & A includes all activities related to a merger or acquisition.
Events for M & A
The central motives why two companies join together or merge by buying are:
Opening up new markets and customer groups, when the two companies have so far appeared in different regions and different customer groups.
Reduction of competitive pressure when the purchase disappears and the antitrust authorities agree.
Acquisition of know-how or patents for new products or for mastering technologies and processes.
Expanding the range of products on offer in order to offer customers a wider range of services or to be full-service providers.
Developing rationalization potentials by avoiding duplication, avoiding high costs for research and development or negotiating better terms with suppliers; Economies of scale are used.
Buying and merging are a challenge for any company. The tasks for the management are enormous, because the procedure is complex. The prerequisites for a successful merger are therefore timely planning and preparation, a clear, elaborated concept and rapid integration. These core tasks are reflected in the three typical M & A phases.
Preparation phase of an M & A
First of all, the company’s strategy, goals and core competencies must be clear, taking the initiative for the M & A process and looking for a suitable partner or company to buy. This results in potential opportunities and risks for the future. The common strengths and weaknesses in the competition should also be considered in advance.
On this basis, the profile for potential candidates for a merger or acquisition is derived. The screening of the market begins. In some cases, it quickly becomes clear who the appropriate partner or takeover candidate is, because it is a competitor. In other cases, the search is difficult because the target company should be a strategically optimal supplement. With the identification of candidates and the gathering of information about these companies, the preparation phase ends. It may be possible to acquire shares in this company via the stock exchange.
Transaction phase of an M & A
The transaction begins with the first contact. In the first step, a Non-Disclosure Agreement (NDA) is signed, provided that the potential partner or takeover candidate is in principle interested in discussions. Then the negotiation strategy and tactics are planned.
The first round of negotiations will seek to clarify whether there is a common interest in a merger or acquisition. If not, the initiative company can consider whether it should risk a so-called “hostile takeover”. If both companies are interested in a partnership or takeover, the detailed audits and the detailed negotiations begin. The detailed examination of the takeover candidate (due diligence) should, above all, identify potential risks:
Legal risks (ongoing legal proceedings)
Financial risks (pension obligations, tax burdens)
Technical risks (obsolete equipment)
At the same time, the communication with owners and, if necessary or meaningful, with the public about the valuation of the company, the purchase price as well as the future role of the previous owner and the management takes place. If the negotiating parties then agree, the merger or acquisition agreement will be worked out in detail. Finally, it comes to contract. Possible restrictions, reservations, conditions or prohibitions of the state supervisory authorities (antitrust authorities) must be observed.
Integration phase of an M & A
This phase is about the organizational and cultural integration of the two companies involved. Management has to prove that it achieves the goals formulated at the beginning. There is a need to find ways and means to bring together products, processes, technologies and, not least, employees and achieve shared business goals. Accordingly, the integration includes new corporate structures, areas of responsibility, organizational charts, process flows, product portfolio reconciliation, services and brands, but also often the dismissal of personnel and the replacement of management positions.
Which measures are necessary in detail depends on the type of merger or acquisition. If it is only about financial participation within a superordinate group, processes and structures can be designed independently. If one company merges with the other, all aspects of the organization must be redesigned. One problem is that companies are focusing too much on the transaction phase. Here they seek investment bankers and experienced M & A professionals to conduct the negotiations, to examine all the details (due diligence) and to determine the purchase price.
But most and serious mistakes are made in preparation and later in integration. The result is that the goals and positive economic effects are not achieved. There are numerous examples of such failed mergers and acquisitions: Daimler and Chrysler, BMW and Rover, Allianz and Dresdner Bank, Microsoft and Nokia (mobile communications).
Master the M & A phases professionally
Especially small and medium-sized companies can benefit from M & A. Whether a baker who takes over the branches of his competitor, a mechanical engineer who buys the know-how of a supplier, or a software company that slips into a large partner: A planned and targeted approach is always important. The following aspects are crucial:
Working out strategic advantages with the partner.
Carefully select potential takeover or merger candidates.
Evaluate goodwill properly and pay attention to negotiation and contract design.
Working out common strengths and planning market cultivation.
Assemble employees from both companies, who take care of all organizational and cultural integration issues.
Give employees security and communicate clearly.
Shaping and coordinating all processes and areas of responsibility.
Schedule time so that employees and the respective corporate culture can align.