Recently, I was invited to participate in a Capital Roundtable Masterclass for middle-market food and beverage companies titled, “Due Diligence, Deal Structuring, Pricing, & Exits — Four Top Deal Professionals Explain How They Identify & Navigate the Unique Issues of Food & Beverage Deals.” Since I serve a variety of middle-market food and beverage clients, and since I’m often asked about best practices associated with successful mergers and acquisitions, this seemed like a natural fit. I joined experts from BMO Harris Bank, NewStar Financial Inc., Dickstein Shapiro LLP, and Robert W. Baird & Co. to share what I’ve learned over several years in serving the industry. Here’s a brief overview.
Lesson #1: Someone Has to Take the Lead
Last year, we helped a food and beverage client initiate what all parties believed to be a “simple transaction.” We thought we’d be finished in a month. Unfortunately, the due diligence consumed over six months. Why? Because each party was sensitive about imposing on the other thereby neither party in this “merger of equals” came forward to assume control over the complete data submission and timing.
In any merger, someone has to take the lead. If there’s no one in charge of the process, there’s a lack of motivation by staff of both organizations to get things done. Without someone driving the transaction from inception to completion, it will plod along without direction month after month after month.
Lesson #2: Address What to Compare Before Moving Forward
When you acquire a company, you’re buying it based on its history. When you merge with another organization, however, you’re doing so based on how the two companies compare and contrast. Because of this, it’s much more difficult to compare data with mergers than acquisitions.
These include but are not limited to: do the companies run on the same systems? Do they handle accounting and inventory the same way? Do they classify assets and liabilities similarly? Are production and customer service metrics comparable? These and other comparisons must be addressed before a decision is made to move forward.
Lesson #3: Plan for Integration
Integration planning for an acquisition might be as simple as welcoming a new CFO. When contemplating a merger, however, there’s a slew of integration issues to consider, from cultural identity and assimilation to personnel issues like compensation, health care, and vacation policies to IT system integration.
Oftentimes, companies will ask, “Which of our two IT systems should we adopt going forward?” The right question is, “Do either of these meet our collective needs, and should we consider a new system altogether?” Oftentimes, the business dynamics of the combined organizations are substantially different than independently, so a brand new IT system may be in order.
Lesson #4: Customers Will Expect Similar Treatment
Once you merge and that merger is public, any customers that the two organizations may share are going to expect similar treatment. It’s important, therefore, to determine how you’ll bill customers, how you’ll expect payment, and how quality issues will be addressed, among other customer service concerns.
Lesson #5: Mergers Are Harder Than Marriages
The biggest surprise of my career in assisting food and beverage companies is how much more complex a merger is than an acquisition. I often tell my clients that mergers are harder than marriages. After all, a lot more time goes into vetting a potential marriage partner than a merger partner. There’s so many more moving pieces, yet a similar level of intimacy is required. That’s why it’s so important to do appropriate due diligence up front to identify the issues that require your attention post-merger. Anything less is a recipe for extreme frustration.