In order to reduce risks and maximize success of a corporate acquisition, a clear understanding of the company’s business strategy and the potential impact the acquisition will likely have on that strategy is essential.

Establish a clear business strategyThisis the first stage that any buyer should go through in the M&A process. Examining strategic objectives is vital, as is looking at any potential risks that could arise as a result of the deal. Action can then be takento prevent damage to the ongoing business operations, while ensuring the deal goes smoothly.

Only with a clear business strategy and understanding of the core competencies of thebuyer and seller can the strength of a potential deal be assessed. Thus, the acquisition deal can be looked at in terms of what impactit will have upon the business’s core strengths, whether it will introduce weaknesses or create new opportunities or threats.

Is an acquisition the right option?
To establish whether a specific acquisition is the right option is the responsibility of the management team, who should also be asking each other if an acquisition of any companyis the right or only option. M&A can be risky, as it is relatively easy to overpay and damage solvency. Integration of a new business unit can often be disruptive on several fronts, from a human resources level through to technology and legal areas. For this reason, the management team needs to examineother strategic possibilities including alliances or even new business launches before settling on inorganic expansion as the way forward.

Accountancy specialists claim that some of the most successful acquirers of businesses tend to be the ones who buy several smaller companies as opposed to one large firm – so remember, bigger isn’t always better.

Once it has been established that the purchase of a company is the best way to meet the company’s objectives, a number of potential targets should be examined in order to ensure that the right deal is selected. Choosing from a large pool of potential deals gives buyers the best chance of making a lucrative deal with a firm that fits its objectives, while keeping costs down. Due diligence obviously also plays a part here – particularly in reducing risk and maximizing potential opportunity.

Getthe right price
Buyers can benefit from establishing a price at which they will walk away from the deal before they enter the negotiation phase. The merger is only a financial success if the post-merger income increases at a reasonable rate compared with the price paid. Without the walk-away price, buyers often find themselves succumbing to small increases and adjustments throughout the deal process, which can result in paying too much.

A common mistake on the part of buyers is agreeing to a purchase price that is based on value created post-merger through synergies. This technique basically has the buyer paying for value it will create through the deal itself, which fails to make financial sense as these values are produced by the buyer’s efforts after the deal is made.

Call in the experts
The use of outside experts can considerably reduce risks and improve chances of maximizing the success of any M&A deal. Legal and financial service providers, alongside accountancy, HR and operational experts are vital in the creation of a successful M&A strategy. As well as helping to secure an effective deal, they will also enable the fulfilment of post-merger objectives.

A number of firms get through the M&A deal process unscathed only to then find themselves struggling under the magnitude of the task ahead in terms of optimizing the opportunities for synergies and economies of scale. External experts offer invaluable support at this stage and can ensure the day-to-day running of the business thrives under its new pressures. Creative value from an acquisition is the most important objective in the post-merger phase of a deal for most buyers and external legal and financial advice often proves invaluable.

About Merrill DataSite
Merrill DataSite is a secure virtual data room (VDR) solution that optimizes the due diligence process by providing a highly efficient and secure method for sharing key business information between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well as real-time activity reports, site-wide search at the document level, enhanced communications through the Q&A feature and superior project management service - all of which help reduce transaction time and expense. Merrill DataSite’s multilingual support staff is available from anywhere in the world, 24/7, and can have your VDR up and running with thousands of pages loaded within 24 hours or less.
With its deep roots in transaction and compliance services, Merrill Corporation has a cultural, organization-wide discipline in the management and processing of confidential content. Merrill DataSite is the first VDR provider to understand customer and industry needs by earning an ISO/IEC 27001:2005 certificate of registration – the highest standard for information security – and is currently the world’s only VDR certified for operations in the United States, Europe and Asia. Merrill DataSite’s ISO certification is available for review at www.datasite.com/security.htm.

As the leading provider of VDR solutions, Merrill DataSite has empowered nearly 2 million unique visitors to perform electronic due diligence on thousands of transaction totaling trillions of dollars in asset value. Merrill DataSiteVDR solution has become an essential tool in an efficient and legally defensible process for completing multiple types of financial transactions.

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Kelly Smith is the author of this article on virtual data room.

Kelly Smith is the author of this article on VDR.