Mergers and acquisitions (M&As) are a ‘quick’ way to scale.
Mergers involve two companies agreeing to combine their operations into one to create a larger, more competitive company. Acquisitions are when one company purchases another, gaining control of its assets, operations or market presence.
But mergers and acquisitions are only a quick fix in theory. In practice, they’re a complex process that needs to be carefully considered and managed.
If you’re considering a merger, acquisition or other strategic partnership, working with a business advisor to navigate the intricacies can ensure a smooth transition and maximise long-term success.
Our own merger story
At Maxim, mergers and acquisitions is one of our specialist business advisory services. We’ve helped many clients get it right to great ends.
A few years back, we also went through a merger ourselves, bringing Maxim and Forsythes Advisors together to become Maxim Business Advisors. Making it happen wasn’t easy, but it was definitely worth it.
Choosing who to merge with came fairly organically for us in that our offices were across the hall. We also had professional connections and existing relationships with the Forsythes team, and discussions began. In many cases, mergers need you to be more proactive.
Related: Maxim and Forsthyes merger delivers competitive edge
The M&A process – and how an advisor can help
Let’s look at what’s involved in mergers and business acquisitions and how having an advisor by your side can help at each step.
Strategic partnerships, such as joint ventures and franchising, are more flexible and less formal but follow a similar approach.
Step 1 – Define your objectives
The first step in the merger or acquisition process is clearly identifying the reasons behind pursuing the transaction. Are you aiming for growth, expanding into new markets, increasing resources or gaining new capabilities?
Defining your objectives, including your financial objectives, will guide the entire process, helping you evaluate whether M&A is the right path forward compared to other strategies like organic growth or capital investment.
How an advisor can help
An advisor can be a valuable sounding board during this stage, helping you carefully assess your goals and ensuring they align with your long-term business strategy.
They can provide objective insight and strategic advice, guiding you to weigh mergers or acquisitions against your other options. They can bring caution and clarity to the process, help you avoid rash decisions and ensure the right path is chosen.
Related: The importance of scale
Step 2 – Identifying targets and initial evaluation
There are several ways you can find merger or acquisition targets, aka businesses that would be a good fit.
These include:
- Using business-for-sale platforms – like Seek Business or BusinessesforSale.com
- Competitor analysis – look for businesses that are struggling or complementary
- Attending business networking events
- Joining industry associations and chambers of commerce
- Engaging with business owners on LinkedIn
How an advisor can help
An advisor can give you direction on the above tactics to find target companies. They can help you analyse market conditions, identify businesses with growth potential and minimal risk and assess competitor activity.
They can also leverage their own industry contacts in the search and help you shortlist businesses based on financials, operations and cultural fit.
Step 3 – Preliminary contact and engagement
Once suitable targets have been identified, the next step is to initiate contact to float the idea and start discussions to see if a merger or acquisition is something they would consider.
How an advisor can help
Approaching businesses can be tricky and feel awkward. Without the right approach, an enquiry can feel unwelcome or intrusive. There may also be scepticism if there is no existing relationship.
To help things go smoothly, an advisor can reach out to business owners or brokers on your behalf—they know how to navigate things. If discussions go well, they can negotiate initial terms and confidentiality agreements (NDAs).
Step 4 – Doing your due diligence
After initial discussions, you need to perform due diligence to ensure the target business is financially and operationally sound and legally compliant before proceeding with your merger or acquisition.
This deep dive into the business should include reviewing the following:
- Financials
- Profit and loss statements, tax records and outstanding debts
- Future revenue potential and cost structures
- Legal
- Business structure (sole trader, partnership, Pty Ltd)
- Existing liabilities, pending lawsuits or compliance issues
- Contracts and liabilities
- Agreements, leases and employee contracts
- Business reputation
- Customer retention and industry standing
- Intellectual property and assets
- Trademarks, patents and business assets
This process of due diligence can help you make an informed decision, structure a fair deal and avoid costly surprises post-transaction.
Expect any target, particularly in a merger, to want to do some due diligence on your business as well.
How an advisor can help
An advisor can play a crucial role in the due diligence process, ensuring you have a picture of the target business before proceeding.
They can perform skilled financial, legal and business analysis and spot any red flags. Experience plays a big part here. They can also bring in suitable legal professionals to help decipher the jargon.
They can also help you prepare for due diligence completed on your business and help with the process.
Step 5 – Negotiation and deal structuring
If due diligence ticks the boxes, you then need to finalise the value of the company you wish to merge or acquire. Once a market value is agreed on, negotiations and deal structuring can begin:
- Mergers – Negotiate the equity split and decide how much ownership each company will have in the new merged entity based on the relative value of each.
- Acquisitions – Negotiate the terms of purchase, including determining how much the buyer will pay, the payment structure (e.g., upfront, instalments, or earn-outs), and address any liabilities or conditions.
How an advisor can help
As well as helping with valuation, an advisor can help ensure the negotiation process goes smoothly, including negotiating the equity split or terms of purchase.
Their expertise can ensure that a merger creates a balanced and sustainable partnership, that costly mistakes are avoided and that buyers get the most favourable terms in an acquisition.
Related: What is business advisory?
Step 6 – Finalising the deal and integration
In both mergers and acquisitions, the final step involves finalising the deal and then managing the integration of the businesses. However, the processes differ slightly depending on the structure of the agreement.
- In a merger
This involves confirming the equity split and ownership structure and combining the businesses by aligning company cultures, systems, and operations. It also involves managing communication with stakeholders to ensure a smooth transition.
- In an acquisition
This involves agreeing on payment terms, legal documents, transfer of ownership and, merging the acquired company into the buyer’s operations, adjusting management staff and processes while addressing any cultural or operational challenges.
How an advisor can help
Advisors can handle these steps better to ensure a successful transaction because they bring expertise, experience and objectivity to the table.
Their deep understanding of deal structures, legal requirements and industry best practices helps them navigate complex negotiations and integrations that may be challenging without prior experience.
Advisors make the process less stressful and more successful
While M&As are possible without the support of an advisor, having one by your side can make the process less stressful and more successful.
We can guide you through the complexities of selecting, evaluating, negotiating, finalising a deal and integrating once it’s done.
It can take 2-5 years to fully integrate and realise the long-term benefits of M&As, ensuring they meet strategic goals and support your business’s sustainable growth.
We’ve seen this firsthand in the four years since our own merger. With the continued guidance of an advisor, you can achieve the same success.
If you think acquisitions, mergers or partnerships could be a good strategy for your business, or you’ve started the process and need support, contact your Maxim advisor or reach out to our team today for a frank chat.
