In the corporate world, very few things are able to create more excitement — and more anxiety — than mergers and acquisitions (M&A).
When done properly, an M&A can catapult a company into a new market, enable it to develop novel products and services, and increase shareholder value.
Needless to say, an M&A can also spectacularly fail if the acquirer misconstrues the target’s core strengths or glosses over serious shortcomings. This is exactly why more companies are turning to expert networks to protect themselves from unsuccessful M&As.
In this article, we’ll take a look at how expert networks should be involved, why they are vital during M&A due diligence, and how they can help acquirers to make better, more informed decisions.
The essential role of expert networks in M&A
The teams behind mergers and acquisitions have many research tools at their disposal – think financial reports, analyst notes, trade publications, and internal data analysis. Yet, despite the sheer amount of data they can get their hands on, there’s always a gap between what this can reveal and what’s actually happening in the proverbial ‘trenches’.
Expert networks are currently gaining a great deal of momentum because modern M&A investigations extend beyond simply considering basic balance sheet evaluations and analyst notes.
Today's buyers must invest a lot of time and resources into examining digital infrastructures, cybersecurity risks, talent recruitment, and even environmental, social, and governance (ESG) compliance.
Expert networks offer the perfect platform to identify highly qualified professionals to answer the most difficult questions that can arise during due diligence exercises for which there are no simple and readily available answers.
In-depth technical reviews
It’s one thing to look at the revenue a technology platform generates. It’s another to know how the platform truly works, to have a strong grasp of its vulnerabilities, and to understand whether it has potential from a fundamental standpoint.
For instance, a standard due diligence process when purchasing a Software as a Service (SaaS) platform could confirm the company enjoys stable revenue, has a decent user base, and registered positive net income in the previous fiscal year.
But does that software rely on outdated architecture that will be obsolete in two years? Without clarifying this, you could be purchasing a ticking time bomb.
This is precisely why consulting a Chief Technical Officer, a product manager, or someone who has built similar platforms in the past is crucial - these experts can immediately spot technical deficiencies, identify scalability issues, and so forth.
Risk management and identifying red flags early
What might seem like a golden opportunity can be a minefield of compliance issues and cultural challenges. Expert networks can help to avoid the pitfalls by connecting your company with seasoned experts who can pinpoint potential regulatory, competitive, and even cultural issues.
Spotlight on synergy: beyond the numbers
Synergy is the holy grail of M&A. True synergy is often reflected in intangible benefits such as cross-selling opportunities, shared intellectual property, or leveraging the acquired company’s specialized workforce to drive new product lines.
The idea is that the merger of the two companies results in much more than just the sum of their individual assets. However, achieving synergy can be notoriously complicated.
Expert networks can elevate synergy forecasting to a new level, particularly by providing expert insights into the different markets and environments in which the acquiring and target companies operate.
Best practices for integrating Expert Networks into M&A due diligence
Speaking to subject-matter experts will produce invaluable insights but to extract the most value from these consults, you must develop a structured approach so here we’ll explore a few activities we recommend you do before, during and after you have connected with an expert.
Identify gaps early
It’s essential to develop an honest and objective understanding of your team’s competencies and identify the areas that will require external input. Looking for knowledge gaps will never be the most straightforward of tasks because it mainly involves identifying things that you don’t know exist.
We strongly recommend spending some time scrutinizing where you currently lack sufficient knowledge to gain the most from your expert network consults.
Leverage multiple sources
A merger and acquisition is an exceptionally multifaceted process, so it’s fair to assume that you’ll need a diverse bunch of experts to undertake the due diligence exercise. It’s best to speak to several experts regarding each facet to ensure you gain a more diverse set of perspectives, which will invariably benefit your decision-making.
Ask the right questions
Expert calls thrive on specificity. To get the best returns on your investment from your expert network calls, make sure you avoid broad generalities.
So, rather than ask, “is this market attractive?” , consider taking a more direct, targeted approach such as “which emerging players could threaten the target’s market share within two years?” or “what operational benchmarks should we evaluate in their production cycle?”
These are fairly pointed and direct questions that will invariably lead to more detailed and meaningful answers. Even more importantly, structure your conversation in a more exploratory manner rather than it being of an interrogative nature.
Consolidate insights
Once the call with an expert is over and you have the recording and the transcript to hand, the due diligence work can begin. You need to take time to document the key themes, any potential concerns, and ideas for the next steps.
Don’t let important information get lost in a sea of email threads. Put all the information in a central place where everyone who needs to access this information can easily find it.
Keep it snappy at first by jotting down quick bullet points before you dive into a longer summary. And regularly review the findings with your team to ascertain if you can see any patterns or repeated questions.
A shared knowledge base will help you to streamline the next steps and avoid misalignment. And when new information comes in, update the repository immediately. Transparency and collaboration can turn a pile of notes into a powerful resource.
Final thoughts
A merger and acquisition has a massive number of moving parts – it’s an incredibly complex process that requires vast amounts of research and resources. But one thing is for sure: incorporating expert networks into the M&A due diligence process will very likely deter you from making a poor deal and orient your organization towards making intelligent strategic decisions.
Accessing the specialized knowledge available when you engage an expert network will give you information that goes beyond financial metrics, allowing you to gain a more comprehensive understanding of the target company, its culture, and its long-term viability.
Seasoned professionals know how to identify potential roadblocks and uncover real synergies, so you can separate the hype from the substance.
Perhaps most importantly, a disciplined process – one that involves identifying gaps, asking the right questions, synthesizing information, and maintaining confidentiality – can provide a solid foundation for a successful merger and a transaction that reaches completion.
In a high-stakes game where every decision counts, incorporating expert networks such as RightAngle into your M&A strategy can be the key factor that makes all the difference between a successful deal and a costly mistake.