Before agreeing to a merger or acquisition, companies should confirm how they’re aligned in every way.Getty Images
In July, Sun Life announced an agreement to acquire Dialogue, a Canadian virtual health and wellness company. For the financial services firm, it was part of a strategy to venture further into online health care. And for Montreal-based Dialogue, it was “a natural next step for the future of the company,” said Navaid Mansuri, chief financial officer.
For both parties, acquisitions can be an advantageous way to expand a business. But these transactions can pose challenges and risks too.
Mr. Mansuri was one of the expert panelists at The Globe and Mail’s “Growth Through Acquisition” webcast on October 24, 2023.
Panelists spoke about the need to go deep under the hood when assessing possible deals. Multiple parties were pursuing a deal with Dialogue, noted Mr. Mansuri. The company’s leadership went with Sun Life because “there was alignment on many different fronts”, including culture, growth strategy, mission and vision.
Mergers and acquisitions (M&A) can be a long and arduous process. For any business owner looking to pursue it as a growth tactic, a first step is understanding the whys behind it, said Michael Black, partner at Richter, a business family office. Do you want to gain scale? Add skills? Get access to new markets and customers?
“M&A is a tactic to achieve some sort of upcoming goal, and a lot of people lose sight of that sometimes,” Mr. Black explained.
To keep the objective in mind, Mr. Black said it’s important to have a sound pre-deal plan and strategy, asking: “Do the targets line up with what we’re trying to accomplish?” A robust due diligence process should look not just at the financials but at things like the cultural fit.
Increasingly, investors are willing to walk away from a deal if there aren’t the right connections. There are also risks of overpaying, misjudging the company or overvaluing its talent.
To avoid bad deals, the right advice is critical, said George Rossolatos, chief executive officer and managing partner of Canadian Business Growth Fund.
“And if you don’t have a professional in-house, seek an advisor to help you,” he said. “These are high-risk decisions. Having the right diligence plan involves operations, legal, financial, market strategy, regulatory, competitive analyses. You need to cross all of those off your list and do it properly.”
That’s all before a deal. After comes the integration of the businesses. To avoid surprises, a plan for this part of the deal is just as important as the M&A itself, said Mr. Rossolatos.
“So many times deals fall apart after closing because of cultural mismatches,” he said.
Don’t overlook the needs of employees in an M&A deal, said Stephanie Ciccarelli, co-founder of Voices based in London, Ont. Her company matches voice talent with prospective employers and projects, and acquired a competitor as part of their growth strategy.
“Without people, you don’t have a company and you don’t have customers,” said Ms. Ciccarelli.
During her M&A process, she wanted to ensure the values of the companies were in line to avoid any disconnect. “It shouldn’t seem like you’re from different planets,” she explained. “The closer you’re aligned the better it will be. It should feel natural.”
Both Mr. Black and Mr. Rossolatos said they’re noticing that deals are advancing more slowly these days, and that companies that have all of the diligence and planning ready are much more appealing targets. Those considering hanging up the “for sale” sign should have their books in order as well as a thought-out growth strategy.
“Buyers are more selective in finding the right fit,” said Mr. Black. When a deal goes sideways, he asks the company that cut ties about what went wrong. “And it’s always tied to the preparedness.”