To complete our blog series on the research report Middle Market M&A: What Executives and Advisors Need to Know to Make the Most of Mergers & Acquisitions, by the National Center for the Middle Market, this final blog post explains the importance of advance preparation for potential M&A opportunities and includes steps companies can take now to ensure they are ready when opportunity knocks.
Among middle market companies that have engaged in M&A activity in the last three years, 21% of buyers and 45% of sellers say they reacted to an unexpected opportunity. That is to say, M&A wasn’t even on their radar but an opportunity presented itself, and they became involved in a deal.
The same research shows that middle market companies that engage in M&A - whether they expected to or not - overwhelmingly agree that they could have been better prepared for the experience. This goes for both buyers and sellers, and it includes companies that have made M&A part of their strategic arsenal. Inadequate preparation can result in unwelcome surprises, slow progress, and less than total satisfaction with the M&A experience. Our research suggests that, over time, the majority of middle market companies will engage in some type of M&A activity. Preparing for that eventuality well in advance of having a specific target in mind (or before one unexpectedly presents itself) can change the dynamics of the experience and help companies drive a better deal. Not only that: Most of the actions that make a company deal-ready will also help it run better every day.
Here are a few steps companies can take now to get in deal-making shape.
A 3-Part Plan for M&A Success
- Start running a tighter ship right now. If you’re going to buy, sell, or merge, your financial systems and bookkeeping need to be in order. You’ll also need well-documented operating processes, upgraded IT, a solid cybersecurity plan, and good working capital management practices.
All of these can help you better document your company’s performance and its future potential. While this is absolutely necessary if you’re going to be involved in M&A, they’re smart business practices even if you’re not. In other words, it always pays to invest the time and resources to strengthen up internal processes.
While you’re at it, it’s a good time to ensure you have solid relationships with your advisors and consultants, especially your lawyer, tax advisor, and bank. These people play an important role in your business’ future, however you choose to grow.
- Know where you want to go. There are many avenues to profitable growth for your company. Choosing the right path starts with a clear understanding of your future goals. For example, do your plans include developing new capabilities or products? Acquiring new talent or technologies? Entering a new market? Perhaps your path to growth involves divesting a non-core area of your business first. Whatever the case, defining what you hope to achieve in the years ahead can help you assess whether an acquisition (or sale) is the best way to achieve it.
- Make a specific deal plan. On average, middle market M&A deals take three to 12 months to complete. Planning for that deal can take three to five times as long. Proper planning can help condense the execution timeframe, which is important to deal success.
To be well-prepared when you come to the table, it’s important to put together your deal team and bring in outside experts sooner rather than later. Few mid-sized businesses possess the internal capabilities to understand the nuances of deal making, so you will need trusted advisors by your side. These partners can help you understand your capital options and can also be invaluable during the due diligence process and helping you thoroughly understand your risks and opportunities.
As part of the preparation process, you will also want to make sure your leadership team is prepared to handle the demands of the acquisition or sale while running your company at the same time. Developing an operational plan that considers both responsibilities can help you plan your resources accordingly.
Start Your Plan Today
It’s never too soon to make sure your company is deal-ready. To learn more about inorganic growth in the middle market and how to best prepare for potential M&A activity in your future, download the Center’s full report, Middle Market M&A: What Executives and Advisors Need to Know to Make the Most of Mergers & Acquisitions.
Others in this series
Post 1: Let’s Make a Deal: 3 Reasons Why the Time Is Ripe for Middle Market M&A
Post 2: It’s About Growth: M&A Is A Strategic Tool for Middle Market Companies Looking to Expand
Post 3: Making Your First Deal: 4 Things Executives Wish They Would Have Known