After prolonged stagnation, investors, lenders and businesses may have pent up capital to deploy. As businesses contend with their own evolving needs, a merger or acquisition may be an attractive way to add value to or extract value from an organization.
When a company decides that M&A is the right strategic choice, it is essential that they be primed to attract interest, move quickly and act decisively whether they are buying or selling. No matter what side of a transaction a business is on, there are essential steps to take when conducting M&A.
The first step in any deal starts with a clear understanding of a company’s strategic intent and how a merger or acquisition fits into that corporate direction. Is the business filling gaps or growing in an area aligned with changing circumstances? Is it more cost-effective to evolve through a deal than to do so organically?
Ensure the company’s management team has a highly skilled set of advisors to guide them through the deal. Lawyers, bankers, communications firms, government relations specialists, human resources consultants and others are critical to the process.
Given the complexity of M&A transactions, it may be prudent to also add an investment bank or M&A advisory firm to the roster. These specialized service providers have in-depth knowledge that can help to ensure a smooth process for deal participants.
In addition to buy-side and sell-side M&A advisory, an investment banking partner can deliver many value-added services to bolster a client’s position when approaching a transaction, including support raising capital; optimizing an organization’s capital structure; or providing accurate, objective company valuations.
In many cases, such firms may take on the management of the entire deal process, leading workstreams pertaining to due diligence, negotiation and, in the case of a sale, marketing. As a result, company leadership can stay focused on operations and maintain the performance that makes their organization an attractive buyer or target.
The regulatory steps associated with M&A vary from jurisdiction to jurisdiction, and they often are in a state of flux, especially around global privacy and security. Organizations need to keep an eye on these changes, particularly as businesses look to diversify their supply chains and governments look for new revenue streams to counter or prevent future losses.
When acquiring, leaders should find the exceptional talent and try to retain them. After the deal, it is essential to ensure the positive aspects of both cultures remain.
Decisions about M&A should be based on short- and long-term goals — for your business and yourself. To ensure a deal delivers optimal value, it is a good idea to engage your advisors as soon as a purchase or sale becomes a consideration for your team. It also is essential to work with a lender that understands your total financial picture and has the resources and connections to accommodate your needs. Learn about FNB’s business solutions at fnb-online.com/business.
For some businesses, it is apparent early on that a sale may be the best ultimate exit strategy. A close financial partner can devise funding strategies that position a company to succeed today and become an attractive, high-value sales target in the years ahead.
For example, a deal structure that incorporates mezzanine financing may enable a business to fund event-driven growth (such as acquiring an add-on business or equipment for a new product). Mezzanine loans can be comprised of subordinated debt or a combination of subordinated debt and equity, with a potential for higher investor return balanced by more flexible structures for borrowers. As a result, a company can pursue expansion opportunities they may not otherwise be able to afford, driving increased revenue without sacrificing its ownership stake or senior debt position.
With a sale on the horizon, management may consider sourcing outside equity, mezzanine and senior debt in the near-term. With increased capital and disciplined management, the business may be able to increase its profitability. In turn, enterprise value may grow at a much faster rate than would be possible through existing earnings alone, leading to a bigger liquidity event for the ownership team when it is time to sell.
Want to learn more on expanding your business? Check out this related article on business expansion from the FNB Knowledge Center for some useful tips.
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In April, FNB announced an acquisition of a successful investment banking firm, adding established M&A, corporate finance, valuation and capital raising advisory services to our comprehensive support for corporate clients. From startup to sale, FNB has solutions to assist you at every point in the business lifecycle. Contact us today at 1-866-362-4603 to plan for your future – for tomorrow, next year or 10 years down the road.
