Mergers and acquisitions, specifically mid-market deals valued between US$10m and US$250m, have been on the rise in Asia-Pacific. According to Baker Tilly International’s recently released ‘Dealmakers’ report, produced in collaboration with Mergermarket, the market saw 2,405 deals worth US$163.9bn completed in 2015. This registers a whopping 71.9% increase in deal volume and 85.4% increase in deal value from 2011.
In Singapore alone, M&A deal volume grew 16% in H1 2016 (first half of 2016) up from H1 2015, with the deal value amounting to US$40bn. The rise M&A activity within Asia-Pacific, further reinforced by the doubling of Singapore’s mergers and acquisitions in 2015, and surge in deal activity in 2016, is indicative of an upward trend. With the increased number of transactions taking place in the market, the key question for transacting parties is: What does it take to run a successful M&A? In this article, we address that question with the following 10 key lessons.
1. Define M&A Strategy Upfront
Leadership should be unanimous about how a transaction can deliver value and achieve corporate objectives.
2. Establish an M&A Committee
Nothing derails a pacey transaction exercise like a lack of ownership and focus. Employees have their day jobs and may view M&A as an optional side project if roles and responsibilities are not defined.
3. Get Your House in Order
Get ready before buyers come a-knocking. Get your numbers audited. If you are selling a business division, have carved-out pro forma financial statements prepared.
4. Run a Tender Process
A bidding process introduces competitive tension which is likely to land you a better price.
5. Verify Consents
Key contacts should be authorised to act on behalf of their Boards. For example, ensuring that deal funding is in place, negotiating terms, ‘blessing’ an upcoming transaction has been blessed
(subject to execution terms, of course), etc.
6. Focus Due Diligence
Analyse the business in depth to decide if you are likely to get the deal value you are paying for. How should asking prices be adjusted? Remember, risk comes from not knowing what you are doing.
7. Representations and Warranties
A seller always puts his foot forward. Make sure to get his promises down in black and white. In addition, consider having a seller ‘earn’ part of the purchase price based on the performance of the business following the acquisition.
8. Prioritise Talent Retention
Human resource due diligence is sometimes an afterthought compared to financial, tax and legal due diligence but often has an outsized impact on deciding the success of a transaction. It is crucial that all stakeholders feel that they are heard and treated fairly.
9. Have a Communication Plan
An effective communication plan engages stakeholders in the transition, ensures consistent two-way communication across the organisation and anticipates contingencies before they become an issue.
Research shows that culture, people and leadership often decide whether a deal succeeds or fails. A well thought-out and more importantly, well-executed integration plan are keys to performance and profit.
MUN Siong Yoong heads Baker Tilly TFW’s Deal Advisory Services and provides independent strategic advice on transactions and value creation. For enquiries on mergers and acquisitions, contact him at siongyoong.mun@ bakertillytfw.com or at +65 6336 2828 ext. 503.