The three-part series Anatomy of an Acquisition demystifies the acquisition process through the mindset of a corporate acquisition team.
IHS, Inc. is the world's leading provider of information, analytics, and expertise to decision-makers in high capital expenditure industries. Founded in 1959 and public since 2005, IHS has acquired 70 companies in the last decade. I sat down with three IHS employees who have each been part of 20 to 30 acquisitions over the last decade: Sheri Rhodine, Vice President of Integrated Marketing; Michael DeJesus, Vice President of Advanced Analytics; and Jenean Fields-Hansen, Director of Marketing Operations.*
Even seasoned start-up teams will tell you that the due diligence process is intense. Knowing what to share, what not to share, how and what to prepare for a potential acquirer is stressful. While the process is necessary, entering it with the right mindset and with insight from a corporate acquirer's M & A team can give you the fuel you need to get the most from the journey ahead. Rhodine, DeJesus, and Fields-Hansen suggest you keep these three considerations in mind as you ready for due diligence:
Focus on the customer first. As you enter into the intensity of due diligence, there is no way to sugar coat the difficulty that is the balancing act between acquisition meetings and running your business. It is tough. You will be sleep deprived. You will need to withhold information from staff. You will need to learn to split your time and energy between the acquisition version of you and the BAU version of you. You will be asked to create reports with angles you may not have thought about and spreadsheets you hadn't anticipated. Sometimes the perspective of the customer gets lost.
"The due diligence process is intense. I can't help but look at the process from a value chain perspective. It's important to have an over-arching view where we ask ourselves: 'how will this change impact our customers?' It's important to use a customer lens and look at how an acquisition will improve the customer's perception of the business and the value delivered," says Rhodine.
Key take-away: Remember why you are in business: you are solving problems and creating opportunities for your customers. Be your customers' advocate. Establish a plan to ensure that your customers are taken care of at every phase of acquisition. Assign your most important customers to sales leaders, set up contingency plans for when you are in meetings. Be open and honest about what your customers will expect if the acquisition occurs. Agree on post-close migration and support plans ahead of time.
Prepare to show your true colors sooner rather than later. Due diligence allows a deep dive into the talent, customer base, product portfolios, capital, processes, systems, technology, and physical assets of the seller. Along with the hard numbers considerations in each of these categories, acquiring companies may also be interested in cultural fit, maturity of processes, customer engagement, among other soft characteristics. Your ability to provide as much clarity as possible to an M & A team goes a long way. A seasoned M & A team pays as much attention to what you share as what you don't disclose.
"Leadership teams may worry about how disclosing information about a particular item they are worried about may impact their ability to be acquired. It's always in the best interest of the seller to be candid from the very first day of due diligence and continue post-close. No good comes from trying to protect people or legal issues. It is critical to set the expectations of the business, to share the dependencies in the people, process, and systems for success that have been achieved and will need to be maintained post-sale." says Fields-Hansen.
Key take-away: The due diligence process can accelerate from a "dog and pony show" to a deep dive pretty quickly. As the MTV RealWorld show says, you know you have turned a corner in the due diligence journey "...when people stop being polite and start getting real." Don't forget that the acquiring company has money on the line. They need to understand if their financial investment makes sense for them. Don't let things get personal. Keep your eye on the people, process, and technology and systems facts of what they want to know.
One-size does not fit all. Every acquisition has its own footprint; it's own unique characteristics. Highly acquisitive firms have learned to create foundational best practices that can be tweaked at any point in the discovery process. A good due diligence process works from a checklist of needed insights. The approach and timing are where the process can be adapted based on context.
Due diligence work can be intense for both sides of the transaction. "We have a systematic approach for due diligence. For the acquiring company, it's important to get a realistic picture of the business while ascertaining the cultural and technical fit, the ability of the potential acquisition's ability to close a key gap. It's also important for both sides to have a plan in place for information to share and not share before the process begins and important decisions that need to be made." says DeJesus.
Key take-away: The due diligence process is dating and post-acquisition is the marriage. Just like a great wedding does not make a great marriage, be sure you are spending your time and energy wisely. Be honest and transparent about your business. Before you start down the road of putting your company up for sale, you need to have several key decisions and support systems in place. Make sure you have assembled a cross-functional team that represents deep insights into your business, its processes, financials, offerings, product roadmap, and customer base. Together with your team, decide upon what information you will want to share, not share, and what key items you will want to cover and understand from a perspective acquirer. And remember you should ask questions too.