5 secrets to effective M&A

ECI has supported its portfolio to make over 70 acquisitions, which means we’ve seen the power of an effective acquisition strategy. We’ve previously discussed the importance of the right M&A strategy, but the M&A market is highly competitive. How do you turn that strategy into successful execution? The ECI’s Origination Team, who are on hand to support management teams throughout the entire life cycle of acquisitions, and our portfolio, share the top five secrets they’ve learned. 

1. Smart use of technology

Technology is a supercharger for buy-and-build strategies. Sourcing and market mapping can be very manual, time-consuming and low value-add, with desktop research and laboursome data collection recorded in a spreadsheet. This kind of work is ideal for automation. But what does that look like in practice? Hamish Paget-Brown who helped develop ECI’s AI opportunity sourcing and prioritisation tool, Amplifind™, comments:

“While off-the-shelf sourcing tools can still be quite inaccurate, and difficult to tell if you’re getting a whole market view, data collection is much more straightforward. Third-party data aggregators can quickly populate things like financials, ownership or location to help inform decision-making. Data is useful, but Excel, decks and presentations are not easy to share and collaborate on and go out of data very quickly. Collaboration is key and that is much easier if you use BI tools such as Tableau or PowerBI. A CRM is ideal if you are very active with M&A. Because you can customise the UI you can focus on what is key to your business. Whether it’s a dashboard or a CRM, one lesson we’ve found valuable is making sure there is a single source of truth and trying to use the tech tool for live meeting agendas and actions. We have found that way tech can take the heavy lifting out of prioritising and managing their M&A pipeline”

2. Win strategies

Once you know your top targets, how do you change your strategy to effectively win the deal? Skyler ver Bruggen, Director in ECI’s Origination Team, not only thinks through these strategies for ECI’s own pipeline, but also works closely with management teams to think through effective strategies. She comments:

“Firstly, your win strategy may differ between ‘on market’ and ‘off market’ acquisitions. This will influence the speed at which you’ll have to move, and the competitive dynamics. In both cases, it’s important to think about the different stakeholders. One thing I’ve found is that it’s important to give yourself some space outside the usual deal conversations to do this, and make room for some ‘blue sky thinking.’ The relationship is key. Who are the most important stakeholders and how well do you know them? If there are gaps, how can you do more? Then think about what motivates each of the stakeholders before putting forward an offer. Will your offer meet those motivations? Understanding your M&A pipeline as a whole also plays a role. How important this acquisition is to your growth strategy? If it scarcity value or brings a product or capability you need, that will influence what price you can pay to win.”

3. Effectively unlocking targets 

How do you actually start the conversations that begin the acquisition process, and who should you talk to? Imran Akhoun, an experienced corporate development director who is M&A Director at Ciphr, discusses how he thinks about engagement with management teams:

“The first thing I do is identify the most relevant interlocutors in the target business, normally that’s a PE investor or more likely a CEO. An introduction from a shared acquaintance is the best way to reach out – but we also use Linkedin – with the aim of getting a first meeting. I have some key ingredients to making that meeting work. Do your homework. Speak to people who know them, and understand their background, it will help that first interaction land well. Make it clear, why is this conversation relevant for them. Make your questions relevant to what will qualify or disqualify the business. Make sure they understand your business. Follow up to thank them and share relevant information.

Assuming the boxes are all ticked, start building out further intelligence with advisors and experts. Involve the relevant team on your side, such as investors and senior leaders, and get clarity on what they’d need to get buy-in. Keep a clear line of communication between the prospect and you at all times. It helps to build rapport, and at any point, all parties are aligned. It may be that the business isn’t right, but I always propose that we follow up at a later stage. There will be a lot of hit and miss, but some misses convert at a later stage.”

4. Incorporating culture

When considering the appropriateness of an acquisition target, one of the hardest but most important factors to assess is the cultural fit of the organisation with yours. We asked David Redman, CFO at Zenergi Group, how he thinks about culture when considering acquisitions.

“The importance of culture in creating value from acquisitions cannot be overstated. Without this fit, understanding, supporting and integrating the business will be incredibly hard. A good litmus test for judging this fit is to ask yourself, are they our sort of people? What does that mean? It means would you employ the staff, could you work with senior management, would you be able to work for the owner, and would you buy their products or services? Of course, these are all hypothetical questions, but they allow you to assess if the two businesses are alike or very different. If the businesses are very different, it doesn’t necessarily mean you shouldn’t do the deal. But it does mean that you will need some dedicated resource and have to take much more time to align culture. You will also have to accept that some of the culture of your business may need to change to accommodate the acquisition in the group, so you would need to be prepared for that.”

5. Integration

So, you have a hit! You have successfully made the acquisition. Now the hard work starts. Effective buy and build is all about integration, and having a repeatable and scalable process. Andrew Collis is CFO at Moneypenny, who have made three strategic acquisitions since our investment. How has he put successful integration at the heart of M&A?

“For successful integration, communicating a clear plan is key. This should cover everything from communications to staff, communications to customers, system migration, technology, and bank accounts. Each item within the plan should have a clear owner. Regular project communication is vital as the plan is executed. There will be bumps in the road along the way but having regular project meetings will allow any issues to be resolved effectively and as a team. At the end of the integration assess its success against the criteria initially laid out in the business case, and finally take forward and document the learnings for the next acquisition (as there will be learnings!)”