3 Steps to Using M&A as a Growth Strategy
Whether the CEO is scanning this disrupted landscape for distressed assets or eying a strategic partnership, M&A (Mergers and Acquisitions) can jumpstart your company’s growth. In the near-term, that could mean shoring up your market position, broadening your products and services, or integrating top talent into your current team. And in the long-term, CEOs who are prioritizing an exit strategy can position themselves for a BIG return. In a recent webinar, our CEO Coaching International Strategic Partners at Intrepid Investment Bankers pointed out that “Everything equal, larger companies are valued at a higher exit multiple than a smaller company.”
Of course, getting that higher valuation isn’t as simple as writing a check and issuing new shares to fund an acquisition. These three steps will help CEOs create a comprehensive mergers and acquisitions strategy focused on Making BIG Happen.
Step 1: Develop an M&A Blueprint
The phrase “M&A” can be deceptive. While many specialized financial institutions and executives are fluent in both, these are two distinct strategies that the CEO has to examine in order to choose the best path forward.
Merging with a company of comparable size will create an entirely new company, often with a new name. Theoretically, this new, larger company should have an increased potential market share, customer base, and talent pool, with reduced operating costs after overlapping expenses are removed. CEOs and c-suite executives on both sides will need to iron out the board composition and agree on which executives will ultimately lead the new company. But there’s usually less drama in a merger because both sides see the strategic advantages and are aligned on long-term objectives.
Acquisitions, by contrast, can be friendly or coercive. Friendly acquisitions can generate many of the benefits of a merger with one added one–if you’re the acquirer, you’re in control. A coercive acquisition happens when the acquired company is less than enthusiastic about being sold but ultimately goes along with it. The benefits are still there, but it can be harder to integrate and keep key people from jumping ship.
With an acquisition, the CEO can choose to let the acquired company continue to operate more or less as is (Think Amazon buying Whole Foods), or it can absorb and integrate the acquired company. And if you acquire a high-performing firm stacked with A-players, it might be best to leave that company’s structure intact, sit back, and reap the benefits. In fact, sometimes firms make an acquisition specifically to “acqui-hire” the talent at the target firm.
Deciding between M and A and building out your blueprint will depend on your overall goals, as well as strengths you want to leverage and weaknesses you might want to shore up. Companies that use M&A frequently often have due diligence and integration planning built into their infrastructure so that they’re always ready to take advantage of the next opportunity. If your company doesn’t have those capabilities, budget for outside help, including attorneys, bankers, tax experts, and perhaps even a c-suite upgrade to a CFO with a proven track record of succeeding in M&A.
Step 2: Consider a Disciplined Programmatic Approach
In fact, building up that M&A infrastructure might not only be essential for the deal that’s on the table. It could be vital to your company’s long-term future.
According to a recent study by McKinsey Quarterly, companies that programmatically pursue smaller M&As outperform competitors that relied on the occasional “big bang” transaction. For these firms, M&A isn’t something they wait around for, hoping for an organic opportunity to spring up, or a life raft they flag down when the company is sinking. Instead, they treat M&A as one of the actionable, measurable steps that leads from setting goals to hitting them.
Our Strategic Partners at STS Capital Partners believe that these kinds of forward-thinking companies could be poised to take advantage of some BIG opportunities as global business continues to reshuffle due to the pandemic and geopolitical issues. “Performance is key,” says Managing Director Andy Harris. “Not just with your business, but also with your competitors. Should you have been fortunate enough to be thriving and holding the lion’s share of the market, are there competing companies who haven’t? If the answer is yes, you may be positioned to acquire them at a better value than ever before. Doing so can be a crucial turning point for your business as you’re driving scale and thereby, profitability.”
Step 3: Implement a Comprehensive Execution Plan
“The CEO needs to recognize and adopt the mindset that any M&A effectively results in a new organization,” says CEO Coaching International’s Michael Maas. “While it’s smart to include all the key players in the process, the CEO should drive the process and lead the group.”
In terms of operations, the CEO’s leadership to-do list starts with establishing benchmarks, timelines, and accountability. Break down everything your team needs to accomplish into 30, 60, 90, and 180-day increments, and assign ownership for every single part of the plan. Leverage tools like the ones we share in our book, Making BIG Happen, to set measurable KPIs tied to progress. And if the first 30 days are rocky, don’t wait another 30 to upgrade any team members who aren’t going to cut it in this new version of your company.
As important as managing these details will be, managing the new company’s culture will be every bit as vital. A merger or acquisition is always going to create some nervousness on the ground floor as employees worry about redundancies and having enough elbow room to do their best work. “Bridging cultures into a common core and allowing a bit of each to survive is important,” says Michael Maas. “The best way to find commonalities to be embraced and differences to be respected is achieved through dedicated, purposeful time together.”
In other words, make your meetings count. Many of our CEO coaching clients have found success using the RPID (rapid) framework: Results, Progress, Issues, Discussion. Optimizing your meeting rhythm respects everyone’s time while also ensuring all important topics get covered. And when meetings aren’t circling the same issues over and over, you and your leaders will have time for personal flourishes, such as getting-to-know-you exercises, celebrating birthdays and professional anniversaries, and recognizing top talent who have gone above and beyond for your company and your customers.
As Michael pointed out, what makes M&A a uniquely specialized growth strategy is that, in a sense, the CEO is starting over. Whether you’re buying, selling, or merging, the company you bring into this process isn’t going to be the same on the other side. But with clear goals, metrics, and processes in place, this new version of your company could be even better at Making BIG Happen.
About Mark Moses
Mark Moses is the Founding Partner of CEO Coaching International and the Amazon Bestselling author of Make BIG Happen. Mark has won Ernst & Young’s Entrepreneur of the Year award and the Blue Chip Enterprise award for overcoming adversity. His last company ranked #1 Fastest-Growing Company in Los Angeles as well as #10 on the Inc. 500 of fastest-growing private companies in the U.S. He has completed 12 full distance Ironman Triathlons including the Hawaii Ironman World Championship 5 times.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 67.8% during their time as a client, nearly four times the U.S. average and a revenue CAGR of 25.5%, more than twice the U.S. average.