7 Steps to Building a Mergers and Acquisition Strategy Tailored to Your Needs

Mergers and acquisitions are a proven strategy for corporate expansion and diversification, used by top companies to boost their growth and consolidate their position.

However, they can be complex to navigate, even for experienced organizations and business leaders. If you want an M&A to succeed, you must weigh all the legal, financial, and regulatory implications, which can be plenty.

This means a merger or acquisition cannot be improvised.

A poorly implemented M&A can cause the financial collapse of one or both of the companies involved, a tarnished reputation, or lost jobs. Formulating a proper M&A framework can help you avoid these outcomes, and ensure the success of your upcoming M&A.

Below is a list of the seven key elements you must consider for your M&A to succeed. To make things even more clear, we also review the key concepts crucial to a successful merger, including due diligence, risk management, and integration planning.

1. Well-defined objectives for the merger or acquisition

The first and most crucial element of an M&A strategy is a clear set of objectives. The standard motivations for an M&A include improving operational efficiency, diversifying your portfolio, leveraging existing markets, increasing your scale or scope, or accessing patented tools or processes.

So, why do you want to merge with or acquire another business? To answer this question:

• Identify pain points in your business that could be resolved with an M&A
• Envision the type of institution you would have post-merger. Write down its would-be mission and vision statement
• Conduct a fit analysis of your idea to determine its value to your business
• Define your desired outcomes and key performance indicators for the new company
• Review the objectives with key leaders and stakeholders

By the end of your evaluation, you should have a clear vision of the purpose of your M&A. Try to be as specific as possible.

2. Identification criteria and market research

Your M&A strategy needs solid identification criteria.

Mergers and acquisitions are a big business, and hundreds of firms make themselves available for M&A every year. Formulate a framework to help you choose the ideal company for your business among the crowded competition.

Some questions to ask and answer include:

• How much are you willing and able to spend on the merger or acquisition?
• What kind of consumer base should the company possess?
• What market should it operate in?
• Are you looking for any synergies? If so, what kind?
• Where should the business be located?

Once you have a framework for finding a business to merge with or acquire, do your research. There are multiple online databases where bankers and business owners list businesses for sale. Sign up for several and review the offers and costs. This is a great place to bring in an expert.

Of course, directly reaching out to companies to verify their openness to an M&A is also a valid strategy.

Arm yourself with as much information as possible, including on regulatory compliance and tax implications. If you decide to merge with a business located outside the country, study the international expansion process.

3. Proper deal structure

There are five different types of mergers. Each format offers unique benefits to the involved businesses and opens them up to new risks.

For instance, a horizontal merger combines two companies operating within the same industry. This deal allows you to expand your consumer base and potentially cut costs.

Meanwhile, a conglomerate merger may expose you to new markets and allow you to share expertise and tools across industries.

Establish the type of merger that works best for your business—be it horizontal, vertical, conglomerate, product extending, or market extending. To do this, refer to your objectives and study each merger type to determine which best suits your needs. Ask yourself:

• What are the goals of this M&A project?
• Which format best fits your business objectives, regulatory constraints, and resources?
• How does your chosen format influence your scalability in the mid to long-term?
• What are the challenges and drawbacks of each type?
• Do you have a solid plan to address them?

Your final choice should be one you can confidently stand behind and have a full understanding of. Once you have a clear vision of your strategy and why it’s the right one for you, you can begin planning.

4. Due diligence and risk assessment

Conducting due diligence is fundamental to the M&A process. After identifying the target company, verify its financial, operational, strategic, legal, and regulatory compliance status.

This information helps you assess the fit, value, and feasibility of the deal. It also reveals potential risks, allowing you to create a mitigation plan and avoid costly surprises or mistakes post-merger.

Some areas you should cover during due diligence include:

1. Assets and liabilities
2. Regulatory and legal compliance
3. Financial status
4. Current contracts and IPs
5. Technology and infrastructure
6. Profitability and market position
7. Employee culture
8. Customer and supplier relationships

5. Comprehensive integration plan

At the heart of an M&A is the coming together of two different entities. Your strategy needs to account for the differences that exist across the companies and how they can be integrated.

This concept, known as integration, is often the most complex part of a merger or acquisition process. It requires you to align the policies, processes, cultures, systems, operations, and strategies of both companies. You must also oversee the transition of stakeholders, suppliers, customers, and employees.

The best way to go about this is to assign a dedicated integration team to define the integration scope, budget, timeline, milestones, etc.

See also: 7 Key Steps for Enterprise M&A Talent Integration

6. Robust communications plan

With integration underway, you must keep all key stakeholders involved. Clients, suppliers, shareholders, and employees will want to know how the company is changing and their roles. Meet this need by establishing open and clear channels of communication.

Avail information to the relevant people when they need it. This will help you build trust, manage expectations, and ensure a smooth transition.

7. Post-merger monitoring framework

Integration is an ongoing process. Even with an integration framework in place, the business landscape is dynamic, more so during a merger.

Create a monitoring framework to help you oversee the business’s compliance and financial performance after the completion of the merger.

Set performance indicators, collect data, analyze it for insights, and adjust your strategy when necessary. Your monitoring framework can include periodic employee surveys, compliance audits, risk assessments, etc. You can also automate the monitoring process for maximum efficiency.

Grow your business with the Deel

The perfect M&A strategy can help your business thrive. Take your time with each element on this list and create a strategy that opens up your business to new opportunities and markets.

Also, tailor your strategy to your company's specific needs. Consider your market position, financial capabilities, and consumer base, and make decisions that work for your business.

Finally, leverage cutting-edge tools like the Deel EOR (Employer of Record) to effectively manage M&A processes like talent onboarding, compliance monitoring, and integration planning.

And if you have any questions about executing the perfect M&A, contact us today. We offer a wide range of solutions and tools that can help optimize this process.