The Essentials of M&A Consulting

M&A consulting encompasses all strategic and operational steps related to a change in a company’s structure – i.e., a merger, takeover, or separation (divestiture).

The services range from strategic acquisitions supporting the realization of new business areas, technological competitive advantages, and people skills with specific industry knowledge to divestitures for financial reasons. The essential steps for a successful merger and acquisition project include the following:

1. Strategy Development

The core building blocks of M&A consulting are a deep insight into a company’s starting position, where and how it creates value (diagnose), a point of view on the future’s unfolding dynamics (forecast), and a clear vision for how to win (choose). Strategic development (strategy formulation or planning) involves scanning for influences and setting goals that can change in response to internal and external shifts.

Developing an effective strategy will help you perform faster and better during merger and acquisition projects. The best strategies provide a north star during turbulent times; they act as sense-making tools for projects, departments, and even organizations so that all their goals are well aligned. It is why everyone involved in the process of creating a strategy must understand and can contribute to its successful implementation.

2. Financial Analysis

Financial analysis involves the transformation of data into meaningful insights for business decisions. It is crucial to exercise due diligence, valuation modeling, and other finance-related activities that help companies determine the value of their assets. Financial analysts use various forms of analytical tools, including horizontal and vertical analysis, to explore trends in data that can illuminate areas of risk or opportunity.

Internal and external stakeholders rely on financial statement analysis to evaluate the health of an entity, identify areas of opportunity and support decision-making. Common techniques include exploring operating variances, performing quotient analysis, and benchmarking performance against other entities in similar industries.

The financial analysis also includes analyzing historical trend data with forecasted information, such as regression or horizontal analysis. The process may also entail building financial models to support decision-making and strategic planning activities.

3. Due Diligence

The phrase “due diligence” means “responsible care.” It applies to various activities, including an investor’s research before investing in a company, a home buyer conducting a property inspection, and an employer doing background checks on new hires.

Any merger and acquisition consultancy project must include due diligence as a crucial phase. It helps clients make informed decisions about potential deals and the risks involved.

Commercial due diligence includes understanding a firm’s business model, main challenges, and competition landscape. It also includes creating a financial model template and sending data requests to firms the client is considering buying.

Management consulting companies usually conduct this step to help their clients with merger and acquisition projects. It usually takes 1-6 months. It is a crucial step before the acquiring firm can decide on the price it will pay.

4. Negotiation

A well-executed negotiation process includes thorough preparation and understanding of your and your counterpart’s advantages. It also involves having a solid grasp of policies, rules, and laws that may influence the discussion.

Consultants are often involved in negotiating partnerships with investors and companies. These discussions include crafting outcomes that satisfy various interests and are typically complex.

The key to success in a negotiation is the ability to empathize with the other party. It helps smooth collaborative give and take and paves the way for effective dialogue. Understanding your best alternative to a negotiated agreement (BATNA) is also important. It can help you stay on the bargaining table. It is called integrative negotiating.

4. Integration Planning

Billions are lost every year when firms fail to implement integration after a deal properly. Consultants accelerate and manage this process using time-tested methods and their industry contacts.

For example, they create integrated planning processes that focus the merger and acquisition team on decisions that drive value. They eliminate program office bureaucracy that distracts from critical issues and demoralizes teams. To ensure the correct team earns the right choice at the right time, they employ a decision roadmap and manage a decision drumbeat.