Right off the bat, you'll have to come to grips with two hard realities. The first is that M&A is an inherently risky endeavor. Second, executing a successful M&A will be harder than you thought to close, more time-consuming than you anticipated to get operational and more costly than you planned to integrate. Those two realities being said, there are few experiences in business, natural or unnatural, more rewarding professionally, financially and personally than executing a successful acquisition when it's done right.
So, what have we learned about getting M&A done right? Here's a sampling of ten lessons learned which we've deposited in our intellectual bank:
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Have a roadmap: Begin with the end in mind and know what you want and need before you buy, based on your overall, long-term growth strategy.
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Hire a Sherpa: Enlist the services of a guide (and yes, that would be us) with a proven track record in navigating the treacherous terrain of M&A.
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Bypass the "for sale" signs: Assiduously avoid those seductive but distressed tactical properties in favor of ferreting out those hidden "not for sale" gems.
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Beware the "winner's curse": This means the excessive premium paid for a property, spurred on by the emotional and irrational exuberance of the "deal" that, down the road, wipes out any gain you hoped to achieve.
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Paint a vivid picture of the ideal prospect: Look for the company that fills the white space in your operation, and don't waver from this profile.
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Don't buy capability: Buy opportunity; buy the future.
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Know the valuations: Right now, prices are up about 10% vs. year ago and this trend is likely to continue for the next couple of years.
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Know what you can afford: We've found that a firm 50-100% of your company's size is fundable through debt and cash flow in most cases. Private equity and venture money is available for more aggressive acquisitions.
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The real work comes after the courtship: It's not enough to close the deal and leave the integration to others. In fact, most of your blood, sweat, and toil should be directed to your post acquisition strategies and implementation.
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Be ready to walk away: This is the cardinal rule of all negotiations, and it applies to M&A as well. The best way to ready yourself for both the pursuit of an acquisition and the need to break away from one if necessary is to keep your emotions in check.
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