Firms can benefit from growing by acquisition or gain various synergies by merging with another market participant. M&A is not a strategy, it is a tactic used to execute a specific strategy. The strategy must already be in place. Good execution requires advanced and specific planning that Mid-America Growth & Capital can be very helpful with.
While M&A can contribute to a firm’s growth, there are several other means of growth that deserve evaluation: leveraging internal developments; licensing a product or service; participating in a joint venture with another firm and co-investing in projects with another party. Acquisitions tend to suit two main motivations—filling in a strategic gap or entering a new market. The ancillary benefits include gaining economies of scale, tax advantages and additional capacity among others. By engaging an Investment Bank, firms can evaluate not only the cultural fit but also the financial viability of a merger or acquisition.
A remarkably high proportion of mergers and acquisitions fail or result in lower than expected returns. This is due to a variety of factors, the easiest to point to is an overvaluation—don’t take the Seller’s word for it, verify and evaluate first-hand with the help of an Investment Bank. As part of evaluating a target, our builds a valuation model than synthesizes a variety of inputs and assumptions to arrive at a range of values based of different scenarios. A valuation model is extremely helpful in guiding decision-making and highlighting assumptions and unknowns.
While industry comparable statistics are a helpful reference, our team will critically evaluate acquisition targets and provide a first-hand evaluation that empowers managers to make key transaction decisions. Another common and critical error in M&A is poorly designed integration or cultural incompatibility of the target company and acquirer. Perhaps the most valuable asset within a well-run target company is its management team and employees—they need to be skillfully retained or appropriately separated from the company. It is critical to identify, evaluate and exploit the “value drivers” within an acquisition target. There are both Financial and Non-Financial value drivers to evaluate.
Financial drivers include revenue, operating leverage, debt to equity ratio, earnings before tax (EBT) margin, etc. Non-Financial drivers include customer characteristics, management experience and synchrony, vendor relationships, location and many others. The single best means of understanding how a target company operates is to ask questions, our team will organize and then undertake this activity on behalf of the acquirer.
Growing through M&A is a team sport and an exciting process that requires everyone to play their position. The most successful transactions involve planning, evaluation and execution overseen by an Investment Bank that executes a previously defined strategy. Our team has helped companies conduct Buy-side searches for acquisition targets and is able to coordinate with a firm’s CFO and other managers to plan for a variety of growth paths. Our team will perform the appropriate due diligence and transaction preparation, including interacting with other “deal team” advisors. The team at Mid-America Growth & Capital allows Management to run the firm and make critical operational decisions without the distractions that a special project can entail.