Page 25 - PWM2025_February Ebook

BETTER BUSINESS

plementary service. cial factors such as culture, opera-
tional compatibility, and the
A matter of culture
integration process can lead to nega-
As noted earlier, the corporate tive outcomes”.
strategies of firms must be aligned Brown points out that, typically,
and an acquisition target that has a buyers will be supported by their
good cultural fit with the acquiring accountants or a corporate finance
business is certainly an advantage.
Here Brown cites the acquisitions of adviser from the outset and a valua-
law firms and accountancy practices tion will be a key element of the
which are essentially people busi- advice such advisers would provide.
nesses: “When it comes down to “Especially in recent times when
integrating people the cultural fit bank funding has been less readily
becomes even more important. If available,” he adds.
they are not compatible, then you Collier see the due diligence pro-
can be certain that staff retention will cess as the saviour here as crucially it
be impacted.” verifies the value attributed to the
He adds that the same can be said business by the buyer. As he puts it:
in firms that deal with customers, “Through detailed analysis of finan-
especially in a consumer facing busi- cial records, operational perfor-
ness. mance and market position, due
By extension, if the acquisition is
more about products or processes, diligence helps ensure that the buy-
then cultures may be less of a prior- er’s valuation, and the price it pays, is
ity. based on realistic and accurate data.”
This said, Summers reckons that He advises buyers to keep in mind
one of the biggest reasons mergers that although legal documentation
and acquisitions fail is the fact there may include mechanisms for finan-
is a cultural misfit. She’s seen this cial redress through warranties and
happen “when two companies’ work- indemnities, these are essentially
ing environments, values, or man- ‘after the event’ solutions. They may
agement styles clash, meaning provide some level of protection
integration can be difficult”. post-transaction “but generally – if
Indeed, Summers thinks that one key problem for management is “over- In contrast, she says that success- there are risks – it is better for a buyer
estimating the synergies or potential of the target company; acquirers may ful mergers occur where corporate to adjust its offer, or even withdraw
have unrealistic expectations, leading to disappointing results”. strategies are aligned. However, “if from a purchase if risks are signifi-
Moving on, Brown reckons that communication between managements companies have vastly different long- cant.” Due diligence allows parties to
and different divisions of the new business will be also “vital in ensuring the term goals or business models, it’s lock the stable door before the horse
integration process is a success.” Brown warns firms on a buying spree that unlikely the deal will yield sustaina- bolts.
moving from one acquisition to the next without ensuring the integration ble success”. The merger of a growth- Brown says that establishing the
focused tech company with a
process for the first acquisition is fully implemented risks negative impacts.
cost-cutting industrial firm which price is usually the first element that
And Summers agrees, commenting that “poor management of the inte-
could lead to conflicts in priorities is is agreed between the parties and
gration process, including ineffective communication, can derail success”.
hardly going to end well. typically this would occur before
She has seen that overly high self-esteem can affect the outcome of deals:
“Egos can certainly come into play, particularly if leadership is too focused Establishing value commencement of the buyer’s due
on making a ‘big’ deal rather than a sound one.” For her, the best mergers Do some firms pay over the odds diligence and the drafting of any legal
happen when all parties engage with a realistic, strategic mindset. out of desperation? Do some CEOs documents: “As a first step in the
But there’s another factor that Brown addresses: the incentivisation of lack the ability to see when it’s time process, the parties would typically
sellers. By this he means that if sellers are to remain involved in the new to withdraw? From Summers’ per- enter into an NDA. The seller will
entity going forward, they should be left feeling “as though they have spective, the answer is yes, this does then supply the buyer with certain
achieved a fair deal and incentivised further to achieve efficient integration happen. Here she worries that some key financial and other due diligence
and grow the business”. deal-makers end up “focusing solely information. The buyer and its advis-
Naturally, the overall financials are important, but Brown thinks that on the financial metrics like ers would then review this informa-
there are other reasons to acquire including the need to secure a product EBITDA, revenue multiples, or cost tion with a view to putting a proposal
line, manufacturing process, IP integral to the business or to provide a com- savings while overlooking non-finan- to the sellers.”

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