Kicking the Tires: Early Testing in Pre-Merger Planning

Whether it’s an industry-transforming merger or string-of-pearls acquisition, companies have just one opportunity to succeed in each M&A activity. A pivotal component of getting it right the first time is deep, sound due diligence in the pre-merger planning phase to solidify and test the intentional rationale for the merger, identify synergies and gaps, determine acquisition value, and project how the integration might impact leadership and cultures. How deep the assessments dig depends in part on the scale and scope of the deal itself, and timing should be as close to the acquisition as possible – ideally within 3-6 months of the final negotiations. Otherwise, if further out – with changes in marketplace and customer conditions – the assessment could grow stale, and should likely be redone.

A thorough diligence starts with first establishing an upfront thesis on the intention of the acquisition, then developing a set of financial (balance sheet, P&L, business model sustainability, topline and margin risks), strategic (directly related to intentions – protectability of IP  assets, incumbent customer loyalty, new markets and customers, realizable efficiency, and transferability of culture and capabilities), and management team (executive strengths, commitment, top talent for targeted retention) assessments that essentially disproves the deal thesis. Or, at the very least, questions the thesis, for further tightening. This kicking of the tires isn’t about seeking confirming information, rather it pursues disconfirming information. Sound counterintuitive?

Think of it this way: While Corporate M&A teams may feel ineffective if they spend an entire year killing deals, a foregone deal – for the right reasons – is as or more valuable to shareholders as a rightly executed deal. Falling in love with a deal without critical, skeptical assessment will lead to overvaluation and/or superficial pre-merger theses and planning. Any acquiring company must be willing to kill a deal at any stage in the pre-acquisition process. Without thesis testing and refinement of merger intentionality, or with poor due diligence, an M&A team will approach an acquisition with limited probability of success. Deal success ties directly to solidifying the thesis intentions with scale efficiency, business extensions, or enabling capabilities. This pre-merger intentionality then dictates all other pre-merger execution planning: the pace, overall approach, and tactics. In summary, the acquisition post-merger-integration will nosedive in the absence of well-vetted intentionality early on during pre-deal diligence.

You can read more about intentionality as it relates to Pre-Merger Acquisitions in a blog post by Senior HighPoint Consultant, Alex Nesbitt, here.

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The highly accomplished consulting team at HighPoint Associates has both the operational chops and industry expertise to successfully and rapidly execute every aspect of M&A planning and integration. We help businesses with both upfront assessment and partner integration after the deal, helping the combined entity achieve its goals on revenue growth, scale efficiencies, and increased capabilities. Contact us today to learn more about HighPoint’s mindful approach to mergers.