Solid due diligence on ALL aspects of the service and a fast start on worth creation are needed to reach the end-point of a strong ROI for the financiers at exit
Recently, I was checking out with a colleague from my days at Waste Management Inc. (WM) recollecting about a major industry roll-up of which we were a part. Waste Management had decided to develop value for shareholders by getting and combining business in the really fragmented bug control and lawn care organisation, producing new nationwide gamers in the industry.
The entire debt consolidation was eventually offered to ServiceMaster, owner of Terminix. Solid due diligence on ALL elements of the service and a fast start on worth production are needed to reach the end-point of a strong ROI for the investors at exit.
My colleague and I were recounting our M&A successes and messes thinking about the long-accepted axiom in the business world that “most acquisitions fail to accomplish their goal.” A Harvard Business Review post states, “… study after research study puts the failure rate of (corporate) acquisitions and mergers somewhere between 70% and 90%.” Throughout the Waste Management roll-up days, we did much, much better. As you might envision, we found out a lot about acquiring, transitioning and consolidating services during those 2 years which Ill summarize here:
Financial and operational due diligence: Important, but not enoughWe had a group focused practically entirely on financial and operational due diligence on the services we were getting. They were skilled pros. But WM acknowledged that all the solutions and numbers and spreadsheets would not alone assure an effective outcome
Market/Marketing due diligence: Critical to successHaving a clear understanding of the marketplace positioning and market perception of the acquired business is essential. Much more so when a company makes add-on acquisitions under the presumption that the newly integrated companies will be accretive to genuine development and EBITDA for the enterprise. Just a few of the critical concerns to ask throughout market-focused due diligence include:
Consumer Perceptions: How does each business present itself? What do consumers and possible consumers think of each business? And how will that change when the 2– or more – companies are merged?
Market Gaps: Are there unfilled gaps in the market that present chances for the freshly obtained or combined business to fill producing extra opportunities for future development?
Products and Pricing: How do the product/service sets and prices methods of each company compare? How will they alter once the merger is total?.
Exists a consumer concentration issue/risk?
Are clients loyal? How pleased are they with the products/services they are receiving?
Will products/services or rates modification post-acquisition? Are clients likely to stay?
Are the go-to-market techniques of the obtaining and obtained companies compatible? What might be the result of changes?
When taking all the above into factor to consider, one might be correct in observing that lots of PE firms stint due diligence. Yet, companies are progressively taking a more extensive technique in light of higher up-front appraisals and the pressure to increase multiples at exit. If you d like to check out how a Chief Outsider Fractional CMO can support your due diligence, lets have a discussion
Getting it Done: And how do all these questions (and more) get responded to prior to the acquisition? The response is a combination of basic fact event, in addition to some simple and affordable marketing research. This may be done by the internal due diligence team or by a third-party firm. Components to be considered must be competitive analysis, market and client patterns and direction, prices methods, current marketing and sales technique, various techniques and resources that will be required to attain the wanted topline and EBITDA development.
Solid due diligence on ALL elements of the organisation and a quick start on value development are needed to reach the end-point of a strong ROI for the financiers at exit.
Bringing this outside focus to the due diligence procedure substantially raises the odds of success in the transaction.
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And how will that alter when the 2– or more – companies are combined?
When taking all the above into consideration, one may be correct in observing that lots of PE companies skimp on due diligence. If you d like to explore how a Chief Outsider Fractional CMO can support your due diligence, lets have a conversation
Bringing this outside focus to the due diligence process significantly raises the odds of success in the deal.