September 7, 2020 admin

M&A Lifecycle Phase 3, Pre-Close Planning

M&A Lifecycle Phase 3, Pre-Close Planning

Before leaving on a journey its’ always useful to have a map to navigate your way from where you are to where you want to go. Hart Marx Advisors has identified five phases of the lifecycle of a merger, acquisition, or divestiture. We believe this will help you embark on this journey with greater confidence.

The measure of a successful transaction is determined by the amount and quality of planning that is executed for each of these M&A lifecycle phases: Pre-Deal Preparation and Evaluation of Transactional Assumptions, Due Diligence, Pre-Close Planning, Post-Close Planning, and Post-Close Execution.

It is not enough to just complete the deal according to financial goals. Making smart financial moves in and by itself, can still spell disaster after a deal is closed. A well-designed M&A strategy will identify why a deal is a profitable undertaking and help position it to be positive for all involved. Professional guidance and expertise early in this complex transaction, may be the smartest move your company can make.

Phase 3, Pre-Close Planning
While M&A activity has slowed in Q2-Q3 2020, the trend has been and should continue to be one of overall growth in activity levels. This expectation is due in part to a long-term relatively stable economy (with 2020 the exception), a low interest rate environment, and the broad opening of national and international markets to more businesses and sectors. Transaction volumes should rebound as we head into 2021 and with it the challenges of finding and closing the “right” deals.

In addition, the pandemic has created its own micro-environment. Many of the strong have gotten stronger, and the weak are even more challenged. Government grants and loans related to COVID-19 has skewed balance sheets and created debt, as well as significantly and negatively impacted certain business sectors. As we enter in Q4 2020 and Q1 2021, consolidation opportunities will likely expand.

M&A activities can propel companies well ahead of organic goals and can provide significant financial upside if the deal is correctly structured and executed. Conversely, the opposite can be true if the “wrong” transaction is entered in to. Assuming the “right” deal is on the table and things are moving along towards close, pre-close planning can either lead to deal success or failure…it is that important.

While there is no one reason why transactions succeed, there is also no one reason why transactions fail. Failure in M&A transactions is hugely costly and sometimes even fatal for a business entity. That is why it is so important to begin and end with enthusiastic support and complete commitment at the very top of an organization. Additionally, one thing is clear — today’s deals should involve as many levels as possible within the organization and should begin as soon as the deal is cut.

Relative to pre-close planning, companies need to look at finalizing information exchange, firming up legal agreements, putting in place funding and financial instruments, and completing their final analysis to ensure the deal itself is still appropriate, among the many other considerations just prior to close. An experienced team of professionals beyond just M&A advisory play a critical role when planning the actual close itself. Legal and finance implications must be completely understood prior to close.

Pre-close planning must also include a look ahead to what implementation will actually look like and who in the organization will be involved. It will be too late to adequately address this once the transaction is closed, i.e. making sure that the organization is ready to communicate with and involve key internal people as well as other important outside constituents including suppliers, customers, and others within the businesses value chain. This type of planning is vital regardless of transaction size and complexity and can be of importance in cases where leadership may be transitioning.

Being inclusive with key leaders and influencers within the organization will help make the challenge of the announcement and post-close environment substantially easier. A strong team of leaders can determine the strengths and weaknesses of the existing organization, anticipate concerns, and build support for what may be substantial change within both the acquirer and acquired.

Finally, making sure that the acquirer’s expectations and benchmarks are well communicated and successfully integrated into the pre-close process can lead to a smoother and more certain close, as well as setting the stage for the all-important post-close planning process.

Look for the next in our Blog Post series titled M&A Lifecycle Phase 4, Post-Close Planning