Mergers and acquisitions (M&A) have long been a vital strategy for business growth and expansion. In today’s rapidly changing business environment, M&A activity is more important than ever as companies seek to remain competitive and adapt to new market conditions.
Importantly, M&A can provide organisations with a range of advantages, including increased market share through the acquisition of rival companies; access to new technology and intellectual property; diversification of product and service offerings; and improved operational efficiency through streamlining operations and eliminating redundancies.
The combination of resources and expertise resulting from M&A can also lead to the creation of synergies that generate cost savings and other benefits, ultimately contributing to enhanced financial performance and an increased competitiveness in the market.
For CFOs it is important to understand the benefits and challenges of M&A, and to be prepared to navigate the complex landscape of due diligence, negotiation, and integration.
Mickey Kalifa who is the CFO at DEPT admits M&A can be a complex and challenging process to manage.
“For us at DEPT it is not just about the hard numbers. I would absolutely say if the chemistry is not right [between the two businesses], it’s never going to happen,” he tells The CFO. “There has to be a perfect chemistry, a meeting of minds and it’s not always about the price.
“The question is do both sides feel really comfortable that this is a relationship that is going to flourish and grow and get bigger and if the answer is yes then we are going to love working with each other for the next 20 years and that’s the most important aspect of it,” says Kalifa.
The global marketing and technology services company, with headquarters in Amsterdam, has made 33 acquisitions since 2015 across eight different regions. Kalifa explains the company’s most recent acquisition in India faced difficulties with regards to bureaucracy and regulation.
“This [India] was a different market. It’s a flourishing democracy with rules and regulations that we are very familiar with. It is a very bureaucratic country, which means that we’ve had to get used to the level of bureaucracy around documentation and administrative process, which can be incredibly time-consuming and labour-intensive; however, it presents us with a huge opportunity,” says Kalifa.
He added that India was already a vast market and was only getting larger, soon to be the third largest economy in the world and DEPT had entered the market “with its eyes wide open, understanding the cost-benefit of operating in India and the opportunity to access talent”.
Why the right team is crucial
DEPT has an in-house team of specialists – most of which have experience within the Big Four firms –that lead the business’ M&A transactions. Kalifa says they have a strict formula to follow, and it involves scanning the market and identifying potential acquisition targets.
The organisation also has a tight and focused strategy, which allows them to carefully select businesses that fit their criteria and goals, he says.
“We are very clear on the targets that we are looking for and we are not spreading that widely. So we’re focused, and we do not go looking and chasing after dozens of different businesses. It’s very tight,” he says.
Kalifa explains DEPT has a “tried and tested model” for due diligence, integration and other duties of the the M&A team.
The process is followed prescriptively, and any transaction, any company, follows that process says Kalifa, adding that integration is a crucial part of the process and requires the involvement of senior management, the CFO and finance team.
One of DEPT’s criteria is geographic diversity as it allows the business to ensure its clients are provided with a global service and maximise opportunities for growth. The company has a presence in Europe and the US and has recently moved into the Asia-Pacific (APAC) region.
Clear acquisition goals are the key to success
Having a clear acquisition goal is crucial for CFOs to successfully execute the acquisition process. It serves as a roadmap to follow throughout the process, helping to ensure it stays on track, and the objectives are achieved. This goal should be aligned with the overall strategic vision of the company and should take into consideration the company’s financial resources and capabilities.
A lack of a clear acquisition goal risks a CFO not being able to make informed decisions about the financial implications of the acquisition, such as the cost, financing, and budgeting. When the company has a clear goal in mind, the CFO can more efficiently allocate resources and prioritise tasks throughout the acquisition process.
At DEPT, Kalifa explains the company has a very focused approached to the kind of businesses they acquire.
I think DEPT has a very unique position in the industry, in that we are a 100% digital and equally (50/50) both a marketing services and technology services provider.
“I think this [digital] is crucial and incredibly important today. I have experience from both sides of the fence, and it’s blindingly obvious where the market is growing,” says Kalifa adding the past five years was indicative of where growth in marketing would come from in the future – digital technology.
“It’s digital marketing and we are 100% digitally focused In tandem with that, the other half of our business, is our technology services offering which is a combination of engineering and experience,” he says.
Striking a balance
The success of any M&A deal rests on several metrics but ensuring business compatibility is one of the most important. When looking for a suitable business to acquire, most companies will look for an offering which is going to either elevate their own product/services or complement their current offering.
Once agreed, the business acquired will begin integrating their operations with their acquirer – a process that can be made painful – both in terms of time and cost – if there are vast differences between chemistry and culture alignment.
Kalifa notes a good balance and chemistry between the cultures of the companies can lead to a positive and productive work environment, which can result in improved productivity and employee satisfaction. Effective communication throughout the process is also crucial, he says.
“Perhaps the most important people to communicate this to are the teams that are joining DEPT as a result of the M&A activity. And it boils down to liking each other, the chemistry between us. Ultimately successful partnerships come down to a meeting of the minds. Also, there’s communication about becoming a part of DEPT from the start,” Kalifa says.
During the M&A process, teams are often consolidated – in some instances, this can result in a loss in headcount. CFOs will need to be mindful of ensuring they retain the best talent while also ensuring they are empathetic to employee concerns.
Employees may feel uncertain about their future with the company, leading to high levels of stress, anxiety, and potentially, a high turnover rate. This can result in a loss of valuable skills, knowledge, and expertise, which can negatively impact the company’s ability to achieve its goals and objectives.
Moreover, losing key employees can also negatively impact the company’s culture, leading to a decline in morale, motivation, and performance.
It can lead to increased costs associated with the recruitment and training of new employees, further straining the company’s financial resources.
Companies must also consider the cultural differences between the two organisations and how these differences may impact the integration process.
Kalifa says it’s important to consider the businesses as partners and shareholders in the organisation, and to remember that their interests were tied to the organisation’s interests.
He said for DEPT, employee satisfaction was a massive metric that is monitored closely. “We feel this is really, crucial and many times the founders and their teams have tremendous loyalty to each other. And we strive to have incredible longevity in our organisation,” he says.
“It’s also important to remember that they continue to be entrepreneurs in our business. That’s who they are, that’s what they want and as long as they have that-under our supervision and management, we can let their entrepreneurialism flourish and make it a great environment for them and their teams to work in.
Though M&A can be a valuable strategy for companies to increase growth and expand their business operations, companies must be well-prepared and must navigate the complexities of the M&A process with care.
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