4 key things to succeed in M&A during crises
The COVID-19 crisis is first and foremost a humanitarian issue. However, we all should aim to keep the society running – and we at Vaaka want to keep building business champions, and at times harvest some profits to our pension fund investors. Transactions are part of the work, and the part where success has been difficult during the pandemic. M&A deals with a Finnish target during April-July dropped to 43 deals compared to last year’s 94 announced deals – a 54% drop!
We had nevertheless good success with 2 new deals during the period: partnering with Staria for accelerated international growth and divesting Kotikatu after our extremely successful 5+ years together. I had a chat with the lead partners in these two transactions, Ville Koskenvuo and Panu Vuorela, about some of the key things what made these transactions successful during these special times.
Firstly, it goes without saying that quality matters. While it is always true, the fact is further underlined in tough times – trying to sell a challenging business in a crisis is very likely to fail. And even if you push something through, is the price right? In the case of Kotikatu, the company is a market leader with a unique concept, it has quadrupled in terms of net sales during the last 5 years and it has a clear growth path also going forward. Furthermore, the underlying demand is non-cyclical with reliable growth drivers, and the crisis had only a very minor impact on the operations and results. We feel that it not only was possible to make a deal but also at the right price for both the seller and the buyer.
Secondly, do your homework. Again, this might be a truism, but reducing uncertainty both as a buyer and a seller is a key component for all parties to have the courage to sign the papers. As a seller, preparations include quality vendor due diligence on the market and the company, enough time for sounding discussions pre-process, and educating key stakeholders such as lenders about the business and the planned process. It helps that the business can be analytically broken down and that the information provided supports the analysis. On the other hand, during a crisis it is probably impossible to make a transaction if you stay short-sighted. Acquiring a company takes a long-term perspective and cannot overly focus on short-term risks and results.
Thirdly, prepare for a lengthy process. M&A work is tough, and it can be especially tough for the management teams. If you have a crisis at hand at the same time, not everything can go smoothly and as planned. Therefore, build robustness in the timetables and load up on perseverance. Ensure your key teams of advisors are available also for a longer period. You will need good stamina to reach the finish line.
Finally – and probably most importantly, remember to emphasize the importance of people and relationships. Listen. Understand each other. Have an open mind and focus on solutions. Technically, remote due diligence and negotiations are easy to execute. Remotely building relationships and trust, or assessing people, is a much harder task. In the case of Staria, it certainly was a good thing that the discussions started for real already last autumn.
So, remember these four key things to succeed in M&A during challenging times: Quality, Homework, Stamina and People.