5 Tips for Leveraging M&A as a Growth Strategy

As the global venture capital slowdown continues and IPOs decline, mergers and acquisitions (M&As) are an increasingly popular exit strategy. Small businesses that are struggling to survive are shopping around for a buyer; thriving companies are on the hunt for bargains. In Europe alone, January was a record month for startup acquisitions and buyouts, with 378 deals reported in total.

For founders looking to buy, this presents a unique growth opportunity to help supercharge your business. However, don’t let low prices dominate decision-making. Here are five tips for using M&A as a growth strategy to get the best outcome for everyone.

1. Determine where an acquisition fits into your business strategy.

It’s no secret that the implications of acquiring a business are significant and, in a buyer’s market, the choice can seem overwhelming. How can you tell if someone else’s company will complement yours from the get-go?

Start by looking at long-term goals and then assess how the acquisition will help you achieve those goals. Analyse the market, competition, current strengths and weaknesses, and assess how the acquisition will help address any gaps or challenges.

Also consider whether an acquisition will complement current products and services, expand your customer base, or help you enter new markets. Balancing these considerations is key to ensuring the perfect fit for your business strategy.

2. Understand the financial implications.

To determine where an acquisition fits into your business strategy, make sure the financial implications are clear. First, analyse the cost of the acquisition, including any potential transaction fees, legal fees, or other expenses. How does that compare against the potential for revenue growth and the impact on cash flow?

Also, consider the time and people needed to integrate both businesses – time is money, after all. It’s important to ensure that the acquisition will be accretive to earnings and generate long-term value for the company.

Next, consider how the acquisition will help you achieve your long-term goals, including increasing revenue, expanding your customer base, and diversifying product offerings. Assess the impact on your balance sheet and how the acquisition will affect your ability to raise capital in the future – should you wish to do that. Getting this balance right will ensure a perfect match.

3. Remember, misaligned culture and values will cost more in the long run.

Still, finance and strategy aren’t the only factors to evaluate when considering an acquisition. While it’s tempting to pursue an acquisition if the price is right, cultural fit and values alignment must not be overlooked. A misalignment of culture and values can create significant challenges during the integration process, impacting the financial performance and overall success of the acquisition in the long term.

Carefully assess the target company’s culture and values and evaluate how well they align with your own. This means evaluating the potential impact of the acquisition on your existing culture and working to ensure that the integration process is handled in a way that preserves and reinforces your values.

If the conclusion is that the culture and values of the target company are not a good fit with your own, it’s generally best to avoid pursuing the acquisition, even if the price is a steal and the other benefits are compelling. While the short-term gains may be attractive, the risks of a cultural mismatch are too high; prioritising cultural alignment is key to the long-term success of any acquisition.

4. Overlook integration at your peril.

Building on from this, when acquiring a company, an optimal integration plan depends on various factors, including the size and complexity of the company, the nature of the acquisition, and the strategic goals. In some cases, it makes sense fully integrate the acquired company into existing operations; in others, it might be better to allow the company to operate more independently, as an extension of the acquiring company.

Regardless of the approach taken, prioritise clear communication and collaboration with the acquired company. Establish a dedicated integration team who will work closely with the leadership and employees of the acquired company to ensure a smooth transition. Provide support and resources to help employees of the acquired company transition to the new organisation. This will help ensure that the culture and values of the acquired company are integrated into the acquiring company’s culture.

Also, set clear goals and timelines, so that progress can be monitored regularly; that way, it’s easier to maintain focus on the strategic objectives of the acquisition and ensure that these objectives are being met. Progress should be made within the first 90 days.

5. Communicate M&A news and benefits strategically.

Effective communication is critical when it comes to M&A news and benefits, both internally with employees and externally with existing customers and partners. How and when you communicate the news will significantly impact how the acquisition is perceived, affecting relationships with various stakeholders.

Internally, prioritise transparency and honesty when communicating M&A news to employees. Strive to be open and candid about your intentions and plans, while also being sensitive to concerns and questions that may arise. Aim to communicate the news as soon as possible, ideally before it becomes public knowledge, to ensure that employees feel informed and engaged in the process. From here, provide regular updates throughout the integration process, to keep employees informed and address any questions or concerns that may arise.

With external stakeholders, a proactive approach is crucial, which means communicating the news directly rather than allowing rumours to spread. Provide as much information as possible, including the reasons for the acquisition, any changes that may occur, and how the acquisition will benefit customers and partners. Be responsive to any questions or concerns that may arise, and work to ensure that the integration process is as smooth and seamless as possible.

The timing of the communication is also important; be strategic about when to communicate the news to each stakeholder group and don’t let employees be the last to know. Overall, success here depends on working hard to ensure that communications are transparent, timely, and responsive to the needs of various stakeholders.

Ultimately, the decision to pursue an acquisition is based on a comprehensive analysis of all these factors, and how well the acquisition aligns with your overall business strategy. Those who assess the potential risks and returns of the acquisition to make an informed decision will reap the most rewards.