Throughout my over 25 years’ experience helping companies grow through strategic mergers and acquisitions, I have seen many different types of transactions and while each deal is unique, there are a few common themes that run through them all. In this series I will be answering some typical questions and clarifying a few common misconceptions about growth strategic mergers and acquisitions. My hope is that you will take advantages of these lessons and avoid the mistakes as you pursue the right deal for your company.
M&A Misconception #1: A Deal Takes Three to Six Months
An acquisition can take 12-18 months to complete. When I share this with first-time acquirers, many are shocked by this timeline. Most believe a transaction can easily be completed within three to six months. While this is possible, for example in the case of a for-sale deal, when pursuing strategic, not-for-sale acquisitions, it usually takes at least one year.
Many Steps in the Process
As you can imagine, there are many parts to an acquisition including initial develop of your acquisition strategy, market research, identifying acquisition prospects, contacting and meeting with owners, conducting due diligence, and finally integrating the two entities. All of these steps take, you guessed it, time to do correctly. For example, it can take 30-60 days to conduct due diligence. That’s already two months of your timeline gone and that’s just one step of the process. You don’t want to rush through the process and risk acquiring the wrong company.
Managing the Owner’s Timeline
Another factor to consider is not only your own timeline, but that of the owner. You are able to control many aspects of the process to build momentum and can take steps to act efficiently, such as viewing multiple companies in parallel. You cannot control how the owner will act. It can take a long time to get a first meeting scheduled, or to receive a response to your letter of intent. There may be several rounds of negotiations. You may even have the unexpected happen like a sickness or natural disaster that derails conversations for a time.
M&A Starts Before the Letter of Intent
Something that contributes to idea of doing a deal in three to six months is that people start the clock after a letter of intent (LOI) is issued. But jumping right to the LOI cuts out some very important steps like developing an acquisition strategy, building your criteria, or identifying the right targets. These are all critical. Even in the case of a for-sale deal, where the timeline may be accelerated, buyers should still spend time developing a strong foundation and strategic rationale for acquiring before signing on the dotted line. From the seller’s perspective, before engaging an intermediary to shop around for an acquirer, strategic sellers may even take a few years to plan their exit, working to build the value of the business and place key leaders in management.
If you are considering growth through strategic acquisitions, I suggest using a 12-18-month horizon to determine when you can expect a deal to close or when you need to begin planning a deal in earnest.
Check back on the blog next week for my post on misconception #2.