The Essential M&A Checklist
Any professional services firm contemplating a merger or acquisition deal has a great deal to think about. It’s easy to become overwhelmed by the myriad financial, operational and marketing details that surround such an event. But a successful integration rides heavily on the level of preparation you do before consummating the deal.
Use this checklist to make sure you think about and address the scores of tasks that, if overlooked, can derail you later on. Note that this list does not include the many financial, tax and legal-due-diligence issues, as they can vary significantly from deal to deal. We recommend that you consult a qualified accountant and attorney to advise you on those aspects of your merger or acquisition.
Let’s dive in!
- Professional Valuation—Hire a qualified valuation expert to assess and value the firm(s) to be acquired or merged. Using an experienced outsider can remove much of the emotion and subjectivity from the process.
- Look for Hidden Costs—Do your due diligence. Are there any undisclosed financial costs—today or looming in the future—that aren’t accounted for in the valuation? For example, a roof that needs to be replaced, or a disgruntled client that is about to file an expensive lawsuit.
- Attractive Financials—If you are trying to sell your firm, you are more likely to get a premium valuation if you can demonstrate several years of consistent growth—with all projections pointing to similar results in the future. “Lumpy” revenues can be a turnoff. Your ability to show healthy profits over the same period also be important. Finally, make sure you don’t have a lot of unnecessary overhead that will make the deal more expensive than necessary.
- Differentiation—When considering a potential acquisition, assess the target firm’s differentiation in the marketplace. Does it offer anything unique or of strategic value?
- Risk Mitigation—Do your best to identify the potential risks of the deal. What happens if the promised benefits fail to materialize? What if the two teams can’t get along? Is there an escape hatch if the integration—despite heroic efforts all around—just doesn’t work? Once you’ve identified the major risks, develop realistic contingency plans to handle each of them.
- Organizational Structure—What will the post-deal company look like from a management, structure and personnel perspective? Go ahead and map it out, knowing that some key details may change. It will help you identify potential redundancies, job title problems, structural problems and other issues.
Plan for Integration Challenges
Bringing two disparate groups together is fraught with potential complications. Raised with different cultures, management styles and expectations, they are likely to eye each other with suspicion and even a little fear, at first.
- Cultural Differences—How different are the two cultures? It’s important to understand this critical factor before agreeing to a deal—if the cultures are too different they could be impossible to reconcile. In fact, cultural incompatibility is one of the biggest reasons mergers and acquisitions fail. That’s why it’s important to focus more on cultural differences than similarities in the two groups.
Once you’ve determined the two groups are likely compatible, you then need to figure out how you are going to unite the two cultures. A merger or acquisition can be the ideal time to initiate cultural changes, as the employees are already primed for change. And it’s a perfect opportunity to introduce a new set of values to the firm.
These values, however, have to be manifested in countless small ways: how and when you celebrate people’s successes, how you deal with failure, how much flexibility you offer, how you make decisions, how people dress, how people collaborate, how people disagree, how meetings are conducted, how much responsibility people have, how (and if) they are held accountable… the list goes on and on. Don’t expect to change everything at once. Look for the most glaring differences between the two groups and start there. Then build more bridges over time.
- Contrasting Management Styles—Depending on the nature of the deal, management style may or may not be a significant issue.
- Layoffs and Reassignments—If layoffs will be required, start planning for them early—you’ll be better prepared to develop internal messaging and answer staff questions. While you may not be able to determine every likely personnel change at this stage, you should be able to draft a preliminary list.
- Compensation Differences—Compensation models, pay scales and pay cycles can differ dramatically at different firms, and they can create a lot of headaches down the stretch if you don’t plan ahead. Despite management’s best efforts, many employees discuss their pay, so inconsistencies and inequities will be noticed. Where one firm relies on a performance-based incentive system with a significant upside, another firm might offer only fixed salaries. The simplest approach—and one most employees would welcome, at least at first—is to keep everyone’s compensation the same (though you may need to synchronize everyone’s pay cycle). Then over time you can standardize the model. But every circumstance will be different, and you will have to evaluate your situation before deciding the best path forward for your organization and people.
- Job Titles—Reconciling the way job titles are handled between two uniting companies can be maddeningly complex. Unless you are lucky and job titles happen to align relatively neatly, you may be better off keeping most of them intact, at least until the new organization is more stable.
- Talent Retention—Is there anything in the deal or its aftermath that could trigger a brain drain? Address any concerns early-on, before the exodus begins.
- Uncertainty and Morale—Employee fear is a natural part of almost any M&A situation, and if left unaddressed it can create significant problems along the way. What you can tell whom, and when, during a merger or acquisition varies from deal to deal. But to the extent possible, err on the side of providing more information to employees as early as possible. Communicate how the deal will create new opportunities and benefits for staff, but don’t hide the potential downsides, too. Staff will want to know how the deal will affect them.
- Recruiting—Are there any roles you will need to fill right away? And will you be prepared to hire if top talent decides to leave the firm?
Address Employee Benefits
In an ideal world, you would simply take the most generous benefits from each company and make everyone happy. And that is exactly how many firms handle the challenge. If that approach is not financially viable, however, you will need to suss out the best compromises you can, understanding that you might lose some employees along the way. Be open about your challenges and, if practical, let people know early-on what the likely benefits package will look like.
- Health Plans—How different are the two firms’ health plans? Losing good insurance can be a deal-breaker for some employees. Can you afford to take on the better plan? Or is there an attractive compromise you can reach?
- 401 K—Determine how you will resolve differences in retirement plans. Retirement planning is a big deal to some workers.
- Other Benefits—Vacation, sick leave, flexibility, remote work options, paid parking—there are a multitude of benefits and policies that, if scaled back or revokes, could affect employee morale. Compare the two firm’s employee manuals so that you make decisions with your eyes wide open.
- Employee Manual—Start updating or replacing your employee manual so that these policies are documented for everyone the day the integration happens.
Create a Communications Plan
How will you explain the deal to your employees and the world? If you don’t establish the narrative, others will fill the vacuum—with unpredictable results. Developing a communications plan pre-merger or -acquisition puts you in the driver’s seat and equips you with the messages you need to set up long-term success. Here are some key components of your plan:
- Audiences—The three most important audiences for your plan are: 1) employees, 2) clients, 3) prospective clients (and the rest of the marketplace). But you may want to consider other audiences, as well—for instance, influencers, referral sources, strategic partners or prospective employees.
- Key Messages—Begin by identifying each audience’s likely objections, then craft messages that overcome those objections and lay out a positive vision of the future.
- Communications Calendar—How will you communicate to each audience? When? How frequently? To answer these questions and add structure and accountability to your plan, create a detailed calendar that designates what dates, media and specific messages you will deliver over the course of the rollout. These are not loose guidelines—your communications calendar should be a prescriptive, day-by-day playbook.
Plan for the Brand
Depending on the nature of your deal, the implications on your brand may fall anywhere on the spectrum, from having little effect to requiring a soup-to-nuts overhaul. Mergers, especially those that produce an all-new firm, are the most likely to need the full treatment. Here is a list of brand elements that may need your attention:
- Positioning—Does the deal change whom you compete against? What adjustments do you need to make to the way you describe your firm?
- Messaging—How does the merger or acquisition affect the messages you deliver to your audiences? Have your audiences changed? What about prospective new hires—is there anything different you would say to them?
- Name—If a new name is in the offing, tackle it right away. It will appear on everything to come. If you want to register your name with the Patent and Trademark Office (strongly recommended), keep in mind that it takes time to vet and clear it. Hire an IP attorney to help you.
- Logo—Will you need a new logo to differentiate yourself from the old firms and/or old competitors? Or do you need to make a few tweaks to a logo that still has legs.
- Tagline—Do you need to convey a new trait or message in your tagline?
- Collateral—From your pitch deck to the collateral that describes your services, chances are you’ll have some updates to make.
- Website—The merger or acquisition may be the excuse you need to redesign your website. Or at the very least, you’ll want to update key pages that discuss your capabilities, team and history.
- Brand Style Guidelines—If you make significant changes to your brand, be sure to capture them in a new set of brand style guidelines. That will help you preserve your brand investment and prevent its decay over time. If you are tweaking an existing brand, update your existing guidelines to document key updates.
Update Your Marketing Plan
You are undergoing a merger or acquisition for a reason. Now it’s time to profit from that significant investment. Determine what changes you need to make to your marketing approach and update your plan accordingly. Here are a few questions to ask yourselves as you retool your plan:
- Will you have new audiences? If so, how will you reach them?
- Will you have new services, products or expertise? How will you promote them?
- Will the deal position you to enter new geographic markets? What’s your plan to raise your visibility in those markets and outflank established competition?
- Do you need to need to invest in new tools, training or personnel to accomplish your goals?
Every M&A deal is different. While this list is a great starting place, it can’t cover every contingency. Most likely, as you do your due diligence you will encounter special issues that pertain to your situation. Add them to your list. You’ll be glad you did!
Did you notice anything missing from this list? Drop it in a comment below — if it fits our criteria, I’ll update this post to include it.
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How Hinge Can Help
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