Inside the Black Box: Mergers and Acquisitions

26 November 2018

With start-up culture thriving and businesses needing to constantly evolve and think on their feet, Mergers and Acquisitions (M&A) have become more appealing than ever. Nevertheless, they can present a unique set of challenges on many levels. Under this landscape, two businesses are forming into one entity (merger) or one business is purchasing and taking over the other (acquisition.) The appeal and challenge is in the newness of absorbing a competitor or rebuilding and conducting business optimisation on operations to maximise efficiency, productivity and profit. The fear is in the unknown and the vast desire to move quickly. The answers are all inside the black box.

Where do we find the information we need to make the decision? What do we disclose to the buyer? How much do we share to the potential acquirer? When do we give out the secret sauce?

Due diligence involves the vendor disclosing this information to the prospective parties to ensure exposure of the relevant facts before any final decisions are made. It is advised to disclose information in terms of due diligence to be transparent and avoid claims later, but timing is everything to protect the interests of the business. You don’t want to give away your business secrets too soon if a deal falls through. For this reason, information that is extremely sensitive may be held back until the final stages of negotiation.

At one point, these competitive advantages and secrets were locked in an actual black box in a room full of business people, where all parties deliberated until the seller and the advisors were ready to reveal specific bits of information to interested parties at the same time. Fast forward to the present day, the black box is a virtual data room with company documents sorted and prepared securely online. This allows one to share critical and confidential information to multiple buyers simultaneously online from all over the world. Now, an entity must be aware of more than just the legal and financial factors, but also the unique challenges involved in acquiring or merging a business in the age of technology.

Some larger companies that existed before the internet and did not place technology at the centre of their business model are now in search of young tech firms to acquire and share their systems. According to CB Insights, last year, 51 percent of investments in private tech companies came from non-tech corporations.  The problem- an entity that is successful on its own does not provide enough evidence that the entity will continue to succeed once acquired or merged. Before jumping in, organisations need to consider the challenges and unique characteristics.

The key is to perform these calculations before taking the risk and consider the plans of integration and improvement. This requires strategic thinking about digital agendas, traditional factors of the deal, the mindsets of the leaders and the culture of the organisation. Organisations must remember that along with the technology or product merge, comes the talent that made this purchase so desirable to begin with, and those that get it right will be positioned right at the top. At Change2020, we believe the most valuable resource you will acquire in any transaction is the skills, experience and knowledge your potential workforces possess. Brad Bevan and his bid advisory team have led numerous public and private transactions over the last 12 years and have provided advice to bid teams to a value of $40b plus over the last 4 years to provide comprehensive advice, risk management, support and expertise in acquiring and transitioning the business and employees through the M&A process. To find out more, get in touch with us here.

Kerryn Fewster

Kerryn is the Founder and Director of Change 2020. She has consulted extensively in the area of Transition and Transformation. She places emphasis on strategy development and solution implementation to minimise people and operational impacts associated with major change.

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