M&A Pipeline Management and Scorecard

M&A Pipeline Development Management

• Determine that M&A is a strategic tool for your company to achieve your long-term growth plans.

• Get aligned with the Board of Directors about your M&A plans.

• Compile a list of your targets from internal sources.

• Start talking with investment banks and advisors to extend the list.

• Implement a process of regular updates of the M&A target list, and consider deal pipeline CRM tools if you want to be more advanced.

M&A Pipeline Scorecard and Ranking

• Develop an M&A target scorecard, and include qualitative and quantitative elements in the scorecard. Use the value capture idea/investment thesis, strategic fit, financial performance, cultural fit, stability/volatility of results, and ease of integration as a starting point and adjust it to your needs.

• Rank the target with the scorecard.

• Discuss the outcome with your stakeholders, especially the Board of Directors.

• Start with M&A Pipeline Management and Implement a 5-Step M&A Process.

Tips for Portfolio Analysis and the Impact on M&A

• Include a portfolio analysis regularly in your strategy meetings.

• Use well-known portfolio analysis approaches and adjust them to your needs.

• Analyze which areas in your industry are growing and open up an opportunity for a buy-side M&A transaction.

• Address specifically the underperforming products and services and consider divesting them (i.e., sell-side M&A transaction).

Due Diligence

Due Diligence - General Topics

• Build a due diligence team with people from different functions.

• Combine internal teams with external experts.

• Question everything in the reporting and planning assumptions.

• Develop a business case and value capture approach.

• Prepare an integration plan.

• Organize check-ins to exchange information between teams.

• Work closely with the M&A project and negotiation leader.

• Focus on a Data-Driven Value Capture.

Legal Due Diligence

• Work with an external M&A lawyer.

• Understand the regulatory environment.

• Start with the analysis of the legal entity structure.

• Go through all balance sheet and income statement items to identify legal topics.

• Intellectual property (IP) is a big topic.

• Analyze past, ongoing, and potential litigation.

• ESG is a growing topic.

• Summarize the Findings in a Legal Due Diligence Report.

Commercial Due Diligence

• Understand first the market and the target's competitive position.

• Continue with the business model and go-to-market strategy before digging into the details.

• Dig into the details of the client list and revenue development assumptions.

• Understand the target's gross margin calculation.

• Benchmark marketing and sales costs for potential synergies.

• Summarize Everything in the Commercial Due Diligence Report.

Financial Due Diligence

• Use an external accounting firm.

• Understand first the business model, then the numbers.

• Focus first on the cash flow, then the income statement and balance sheet.

• Think about what is missing in the numbers.

• Don’t assume compliance with accounting rules.

Tax Due Diligence

• Hire an external accounting firm for the tax due diligence.

• Ensure that the target company has complied with filing requirements.

• Identify potential tax risk and evaluate the target’s tax strategy.

• Understand the transfer pricing approach.

• Check whether there is a risk of permanent establishments.

• Analyze the impact of the M&A transaction on tax positions.

• Looking Forward: Different Tax Structure Options.

Analyze the Time-to-Market Effect in M&A

• Define the base case carefully and compare it to the M&A scenario.

• Calculate scenarios in the base case with time-to-market improvements.

• It is challenging to grow with different products/services.

• Include a risk percentage in the M&A case.

• Work closely with marketing and focus on reasonable assumptions, not precision.

Practical Tips for M&A Negotiations and Closing

• Don't fall in love with the target.

• Be prepared and know everything about the target, including what they want.

• Price is only one element in the negotiation.

• Prepare a list of problems.

• Develop a list of items to give up.

• Focus on the big topics.

• Align everyone for the closing day.

• Celebrate Together and Get Ready to Kick Off the Integration.

Performance Improvement Plans/Restructuring Plans

• Be careful with your business case assumptions and discuss ideas with the target.

• The change management team needs to work closely with the due diligence and integration teams.

• Work with HR to identify and retain key talent.

• Communicate actively with all stakeholders.

• It's crucial to have tight control of the progress at the beginning.

• Continue updating your plans.

• Focus on predictive indicators and not only actual results.

• Apply the concept of sunk costs.

• Motivate people throughout the process.

• Be Resourceful and Flexible in Your Approach.

Cash Flow Management

• Dig into the details of the historical cash flows.

• Develop a 13-week cash flow forecast that you update weekly.

• Link the bottom-up and top-down cash flow models.

• Find synergies in working capital management.

• Consolidate bank accounts.

• Use the treasury function for better short-term investing and hedging strategies.

• Create processes that use the best practices of both companies.

• Use synergies of scale to invest in better software solutions.

• Talk about Good News.

Synergies in Purchasing

• Use The Power of Higher Volumes.

• Improve supplier selection.

• Find the best negotiators and train teams.

• Make price only one element of the negotiation.

• Build strong supplier relationships.

• It can work centralized and decentralized.

• Focus on Quick Wins and Celebrate Success.

• Make it Work, and Don't Accept No.

Alignment of the Management Reporting System

• Define the timing of the IT integration.

• Align significant accounting policies.

• Set up templates to integrate management reporting.

• Include operational key performance indicators (KPIs) and value drivers.

• Align the reporting calendars and focus on critical reports.

• Start with the Basics.

M&A Relationship Building

• Start early building a relationship.

• Include people who speak the language of the other company.

• Listen and ask how they would do it.

• Celebrate Together.

M&A Change Management

• Make it clear why change is necessary.

• Use different communication channels and talk with people.

• Focus on opportunities.

• Find change agents and use the concept of marginals.

• Build teams with people from different companies.

5 Financing Tips for the Post-Closing Phase

• Check the possibility of increasing your working capital credit line based on the consolidated accounts receivable and inventory.

• Implement working capital reduction actions.

• Analyze whether the factoring of accounts receivable makes sense for your company.

• Consider sale and leaseback transactions of non-current assets.

• Use the portfolio analysis to analyze the possibility of selling business units or companies.

Sell-Side M&A: How to Make the Sale of a Business Unit or Company Successful

• Select the right team of internal and external experts.

• Prepare a thorough business case and start early with compiling answers to likely due diligence questions.

• Create a Confidential Information Memorandum (CIM).

• Think like a salesperson.

• Be careful what information you share in the mergers and acquisitions due diligence.

• The sales price is only one element of the deal.

• Think carefully about exclusivity.

• Support the buyer with their mergers and acquisitions integration.

• Talk with tax experts about the deal structure.

• Be Patient and Wait for the Right Deal.

M&A Readiness Checklist

• You have a target pipeline and rank companies on a scorecard.

• You clearly understand the target and have a strategy for the value capture.

• Your board of directors (BoD) is up-to-date about your M&A plans.

• You have an M&A project team with people from different departments.

• You do not overwhelm your organization and have a list of external specialists.

• You have a way to finance the transaction.

• You are not surprised that many things come differently.

• You are aware that M&A is different from day-to-day work.

• You have an integration plan.