It’s a strange thing but it’s the ultimate dealmaker’s paradox: that special something that makes a business valuable and attractive to would be purchasers is also a matter of utmost secrecy.

The question is, as a seller or buyer looking to take a business to the next level, how do you share and scrutinise the inner workings while keeping things under wraps? Of course business integrity and trust go a long way, but sometimes are not enough to keep a prospective deal confidential.

Confidentiality – that is the nub.

A common feature of many Mergers and Acquisition’s (M&A) is the considerable volume of confidential information that needs to be exchanged between the buyer and seller. Of course, this is perfectly reasonable and necessary for a successful M&A. However, such movement of confidential information leads to the potential for misuse – either by accident or design.

Therefore anyone who is given access to confidential information needs to be bound by the terms of a robust confidentiality agreement before any information is exchanged

So what should such a confidentiality agreement cover?

Whilst standard confidentiality agreements abound and all basically cover the same well known clauses and covenants, there are some less obvious points that need to be considered.

Below we take a look at some important points what should be covered when drafting a confidentiality agreement.

  • It is not sufficient for an agreement simply not to disclose confidential information. It should be stated that the confidential information is to be used only for the purpose of evaluating the proposed transaction/investment.
  • List what could be considered to be confidential information in a non-inclusive list and have the recipient acknowledge that this confidential information has competitive value
  • Look to protect confidential information by only releasing the increasingly sensitive information in phases.While it is critical for a smooth and timely sale process to collect and organize due diligence information in advance, you should only distribute increasingly sensitive information as you progress in the sale process.

Other points to note when considering the confidentiality question in the M&A process include:-

  • Use the Right PeopleAs discussed earlier there will be the sharing and transfer of a vast amount of information during the M&A process, so it is important that you trust the people who will have access to that information, much of it confidential and sensitive. Therefore, anyone who is allowed to view such sensitive data must be vetted.
  • Make Best Use of TechnologyIt is important that companies retain control over their data, and in any M&A, where there will be many sensitive documents, it is necessary to use a highly secure solution that utilises appropriate technologies such as multi-factor authentication, encryption and certified data servers.
  • Implement SafeguardsTrust and technology will not be enough to keep important data confidential. It will be necessary for organisations to institute specific policies and procedures with respect to data management and security. Good intentions can never replace a coherent strategy, and it is critical that all personnel are effectively trained with regard to the company’s data security goals and expectations. In addition, the tone from the top must be clear and all levels of the company must be clear as to the planned strategy and act accordingly.

In the end the most effective way to maintain confidentiality is to control the flow of information. However, M&A deals are fast-moving and often founded on trust, but as we have discussed that does not mean that certain measures should not be taken to ensure that closely guarded information stays secret. In fact, confidentiality need not stymie the process or breed suspicion. Indeed, a thoughtful and transparent approach will not only protect disclosures but ultimately facilitate a deal, bringing more focus and calculation to the proceedings.

For more information on how The Leadership Team can help contact us at grow@leadershipteam.info and someone will be in touch to discuss your business needs with you.

There are many ways that you can grow your company; scaling, innovation or strategic alliances to name but three. However, for many businesses, mergers and acquisitions are becoming the strategy of choice.

So, why is that?

Well, first off, M&A’s are much faster than organic growth.

They can be a quick way for a firm to enter a new market, add new services, and gain valuable expertise. In addition, a merger or acquisition can sometimes help a company overcome some particular insurmountable barrier to entry or help it to acquire some intangible assets, such as a competitors particular unique branding that is a competitive advantage.

Also there may be a business opportunity or threat that suddenly appears that requires radical and decisive action and an M&A might just be that strategy.

Below we discuss five reasons to consider an M&A strategy to enable your organisation to maintain its competitive advantage.

1.Add Critical Capabilities

In today’s fast changing, increasingly highly regulated, complex business environments organisations are vulnerable to skill gaps, compliance issues and ultimately competitive weakness. In many cases a well thought through M&A can address these challenges as well as add value to the company.

2. Add Expertise and Intellectual Property

Allied to the first point, an organisation is only as good as the talent and expertise it employs. Mergers & acquisitions are also an effective way to acquire and secure valuable intellectual property (IP) which has become the new currency of modern business.

3. Create a Stronger Combined Business

In many cases the right merger can result in significant cost-cutting and/or money-making opportunities by taking advantage of overlapping operations or resources and consolidating them into one entity. By combining two organizations you can reduce competition in the marketplace, open new territories, offer access to new markets, expand customer bases and provide new sales opportunities, all of which can potentially increase revenue.

Similarly, a strategic merger can effectively reduce costs by combining facilities, workforces, and business units.

4. Develop Better Products/Services and Enhance Customer Experience

Joining forces with another company can create innovation in manufacturing, distribution, design and research and development.

Also, as Peter Drucker once said, “The purpose of business is to create a customer.”

And so the purpose of a merger is to create a more satisfied customer. Ask yourself during the merger process, “How does my customer win?” If you can point to more customer service offerings, better pricing, innovative products and an improvement to the customer experience, then your merger makes sense.

5. Reduce Risk

To avoid uncertainty and the risk of internal development, external acquisition can very often be the way forward and if properly planned will provide an immediate value that includes a turn-key, operational new service, along with a built-in customer base and target audience.

So, should you consider an M&A as part of the growth strategy for your business?

Well, that really depends on your specific company, goals and objectives and the dynamics of the market you are operating in. As well as operating with the necessary due diligence and engaging with the right outside experts to help you in discovering all their is to know about your intended acquisition, it is also prudent to ask, and be able to answer, the following post M&A questions:

  • How will the merged firm generate organic growth?
  • What other opportunities will exist for the new-and-improved organization?
  • Will the ability be there to increase both revenues and profits long-term?

If you can satisfy yourself as to the answers then you can determine whether this is the right growth strategy for your firm.

For more information on how The Leadership Team can help, contact us at grow@leadershipteam.info and someone will be in touch to discuss your business needs with you.

In this blog we take a look at Mergers and Acquisitions (M&A). In simple terms this involves one company acquiring another by way of a takeover (acquisition), or two companies fusing to form a single larger entity (merger).

The main reasons for a company to execute an M&A transaction are to grow its business (by acquiring or merging with a competitor) or add a new line of business to its existing activities. M&A can either be public (when it involves companies listed on a stock exchange) or private (when it concerns companies privately owned by individuals).

In many cases it is wise to consider using the services of a merger and acquisition (M&A) advisory firm that can provide advice on corporate mergers, acquisitions and divestitures.

M&A advisory firms try to match businesses for sale with prospective buyers. To do this, an M&A advisory firm’s services typically include:

  • Business valuation;
  • Preparation of a pitch including a confidential business memorandum
  • Identification of prospective buyers and discussions with these parties;
  • Providing negotiation of purchase and sale agreement and other deal-related agreements;
  • Assisting with due diligence; and
  • Resolving transaction issues throughout the process.

According to Harvard Business Review (HBR) research, at a time when mergers and acquisitions are increasing at a much faster pace across all industries globally, the failure rate of such acquisitions can be as much as 90%.

The reasons for such an alarming rate are myriad such as companies do not do proper due diligence or don’t have a clear long term strategy. However, there are strategies that companies involved in mergers and acquisitions can adopt to mitigate some of the risks of such a deal

So how can you ensure success for your M&A?

Firstly, it is absolutely vital that the process is completely transparent, realistic and involve all areas of management if success is to be achieved.

In addition the following factors need careful consideration:

  • Be clear from the very beginning on what matters and why. Where is the added value by doing the deal?
  • Estimating synergies is key as by so doing you will also shed light on issues such as due diligence, the structure of deals, and the negotiations that lead up to them.
  • As with any business deal it is invariably the case that there is a small number of actions that will have the greatest impact. So identifying them and focusing your resources on achieving those actions is key to a successful outcome.
  • Merging or acquiring a company can be draining from both a human and financial perspective, and it can quickly spiral out of control if the businesses have not outlined what they wish to achieve for each stakeholder. So clearly defined goals are essential.

Remember that you will be faced with challenges so make sure your strategy assesses the potential risks and complications that could arise during the process.

Consider expert advice

Mergers and acquisitions require a high level of expertise so consider bringing in an expert who can assess the situation and the planned objectives without any favouritism or bias. An independent expert will help challenge claims, validate business decisions and ensure leadership stays on track in its goals.

In addition, an independent expert should look to ensure employees receive the support they need through the merger or acquisition, and make people understand why the changes are taking place. If this isn’t done there is a risk that they will lose focus, become unhappy and potentially be disruptive for the company.

For more information on how The Leadership Team can help contact us at grow@leadershipteam.info and someone will be in touch to discuss your business needs with you.