/ The proposed steps to formulate a post COVID-19 acquisition strategy:
- Define a clear objective for the acquisition strategy
- Set the M&A search criteria
- Search for potential acquisition targets
- Begin acquisition planning
- Perform valuation analysis
- M&A due diligence
- Transaction structure and agreements
- Financing strategy for the acquisition
- Closing and integration of the acquisition
Mergers and acquisitions are notoriously difficult in any environment and post-COVID, they may be even trickier. The urgency to redirect and reshape corporate strategy has never been greater because of the pandemic. Most executives would have the highest appreciation for growing and diversifying revenue streams to make their businesses more resilient against future recessions.
A counterintuitive growth strategy is encouraged for those executives and companies who are prepared to turn the crisis into opportunity. Acquiring a company to obtain access to markets, products, technology, resources, or management talent is less risky than gaining the same objectives through internal efforts over a long period of time.
It is time for executives with a clear growth strategy, strong balance sheets and access to adequate funding facilities to identify targets with the most promising growth technologies, solutions, and sectors to gain first mover advantage.
Described in more detail below are the proposed steps to formulate a post COVID-19 acquisition strategy:
1. Define a clear objective for the acquisition strategy
Developing a successful acquisition strategy revolves around the acquirer having a clear idea of what they
expect to gain from making the acquisition i.e. what their business purpose is for acquiring the target company
(e.g. expand product lines or bulking up for an eventual listing).
2. Set the M&A search criteria
Determining the key criteria for identifying potential target companies (e.g. profit margins, geographic location
or customer base, etc.).
3. Search for potential acquisition targets
The acquirer uses their identified search criteria to look for and then evaluate potential target companies.
4. Begin acquisition planning
The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good
value; the purpose of initial conversations is to get more information and to see how amenable to a merger or
acquisition the target company is.
5. Perform valuation analysis
Assuming initial contact and conversations go well, the acquirer asks the target company to provide substantial
information (current financials, business plans, financial forecasts, etc.) that will enable the acquirer to further
evaluate the target, both as a business on its own and as a suitable acquisition target.
After producing several valuation models of the target company, the acquirer should have sufficient information
to enable it to construct a reasonable offer. Once the initial offer has been presented, the two companies can
negotiate terms in more detail.
7. M&A due diligence
Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims
to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed
examination and analysis of every aspect of the target company’s operations (i.e. financial metrics, assets and
liabilities, customers, suppliers, human resources, growth prospects, etc.).
8. Transaction structure and agreements
Assuming due diligence is completed with no major problems or concerns arising, the next step forward
is executing a final contract for sale; the parties make a final decision on the type of purchase agreement,
whether it is to be an asset purchase or share purchase.
9. Financing strategy for the acquisition
The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing
typically come together after the purchase and sale agreement has been signed.
10. Closing and integration of the acquisition
The acquisition deal closes, and management teams of the target and acquirer work together on the process
of merging the two firms.
Should you need further clarity or assistance with implementing any of the above, do not hesitate to
contact any of our Partners.