What non-financial factors should you consider in a merger or acquisition?

I've witnessed firsthand the pivotal role culture and values play in M&As. Aligned cultures can accelerate post-merger integration, driving value creation. Conversely, cultural clashes often result in costly inefficiencies and talent attrition. It's essential to conduct a thorough cultural due diligence alongside financial analysis to ensure a strategic fit that can sustain long-term growth and success.

This is super important if human capital is valuable or key - ie. professional services or temp recruitment. I have seen a merger fail post due to the differing work-life balance, and flexibility attitudes of both companies.

Non-financial aspects that influence mergers and acquisitions include how well the two companies' cultures match, how well their executives get along, and how satisfied their people are. Culture fit helps integrate after the deal, reducing conflicts and improving teamwork. When leadership style and aim match, strategic alignment and decision-making are easier. By monitoring employee mood, you can retain good staff and stay productive during change. Regulatory compliance, market positioning, and company reputation are also crucial. Social responsibility and environmental impact also affect public perception and sustainability.

Totally agree. Since the foundation of our group we focused on culture and values. Therefore this has become one of our key criteria in assessing new investment opportunities in our M&A Strategy. Up to date it always paid out in our PMIs.

Cultura corporativa: A integração de duas empresas requer um ambiente de trabalho compatível e coeso. É fundamental avaliar a cultura corporativa das empresas envolvidas e garantir que as diferenças culturais sejam minimizadas para promover a harmonia e a eficácia da equipe.

Culture and values go hand in hand and are equally important. If there is too large of a difference in the corporate cultures and values of two firms, then the idea of a merger or acquisition should be a non-starter in my view. The deal may look great on paper (financially), but if these areas don’t mesh, it creates a much bigger challenge to make the deal a success.

When two companies merge, it's not just a financial union but a blending of cultures. A successful merger requires aligning the core values and cultures of both companies. Consider a tech startup merging with a traditional corporation. The startup's agile and casual work environment might clash with the corporation's structured approach, leading to employee dissatisfaction and turnover. It's essential to assess cultural compatibility early in the negotiation process to ensure a smoother integration, fostering an environment where all employees feel valued and understood.

Leadership of the firms involved in an acquisition is most important when considering how the combined organization will be run after the merger. Have the leadership roles of the acquired company been laid out clearly in terms of roles/responsibilities? Has that management team bought into these? Have reporting lines been discussed? This needs to be discussed as it will often be a challenge for an acquired company's management team to now report to someone new. This can be quite the adjustment, especially for smaller businesses, who are used to running their own show without oversight. Establishing transparency around how the company will be run after the merger is crucial in avoiding problems down the road.

This is true, but usually, it is important to decide on a single leadership team to avoid a power struggle. Decide upfront. Whoever has the strongest leadership and governance frameworks out to come out on top.

For me it is more important than the financial factors. The success of a deal depends on this. "In good faith" would not be enough to have a smooth post-acqusition process. Try to have detailed deal documents and integration action plan agreed by all parties

Sistemas e processos: A integração de sistemas e processos é crucial para garantir a eficiência e a consistência operacional. É importante avaliar os sistemas de gestão, processos de negócios e tecnologias utilizados pelas empresas envolvidas e determinar como eles podem ser combinados para maximizar a produtividade.

A few other important factors to consider regarding leadership and governance are executive compensation and their historical performance with deals. Is the leadership team's compensation aligned with the broader organizational goals, and how might this change post-deal? What does their deal-making track record look like—have previous acquisitions been executed smoothly, or have there been significant missteps? These are measurable. Another less predictable element is ego. New aspects of executives' personalities can surface post-deal, especially if there are changes to the seniority and roles within the combined leadership teams. How will these adjustments affect the integration process and the company's forward trajectory?

Customer concentration can be a deal killer. In SaaS, buyers might not obtain proper debt financing for deals with banks' perceptions of customer concentration. In healthcare, payor mix is highly scrutinized. Over exposure to Out of Network (OON/PPO) drops valuation multiples because buyers prefer the consistency of In Network (INN or HMO) reimbursements. However, paneling may reduce revenue so owners should do the math to see which side of the equation they should influence before going to market. Even the patients themselves can influence the attractiveness of a healthcare asset - those who can profitably serve rural and other underserved patient populations are incredibly attractive to buyers who are positioning for VBC contracts.

If you don't provide the narrative --- your customers and the market will create it on their own. Tell your story first. You have control of the narrative!

Rede de clientes e fornecedores: É essencial avaliar a base de clientes e fornecedores das empresas envolvidas na fusão ou aquisição. Isso inclui analisar a lealdade dos clientes, a qualidade dos relacionamentos com os fornecedores e a compatibilidade das redes de distribuição. Esses aspectos podem afetar a capacidade da nova organização de manter e expandir sua base de clientes e garantir uma cadeia de suprimentos eficiente.

Understanding how the merger or acquisition affects your customers and market position is crucial. Will the merger allow you to enter new markets or improve your offerings to existing customers? An acquisition might look great on paper, but if it alienates your current customer base or dilutes your brand identity, it could be detrimental in the long run. Engaging with customers early and assessing market reactions can help mitigate risks, ensuring the merged entity can maintain and grow its customer base.

Occasionally we represent sellers who own fairly average businesses in many regards and yet they obtain outsized valuations. This is usually because of something proprietary and tech-enabled that the buyer considers highly valuable. While PE-backed strategics generally have tightly optimized workflows and software, things like high-domain authority, customized workflows, AI-enabled chart auditing, and sticky, tech-enabled outcomes measuring tools have created bidding wars for assets that, on the surface, likely would not have garnered an auction-environment. Unfortunately, sellers almost always believe their proprietary tech will be valuable to their buyer, and often the strategics already have superior tech.

Inovação e desenvolvimento: A fusão ou aquisição pode oferecer oportunidades para a inovação e o desenvolvimento de novos produtos e serviços. É importante avaliar a capacidade de inovação das empresas envolvidas e identificar oportunidades de criação de valor através da combinação de recursos e expertise.

Healthcare deals increasingly fail in due diligence because of compliance issues. In fact, compliance has become so synonymous with risk that in scenarios where an asset derives significant competition pre-LOI and the owners performed an audit or seller's QoE, the buyer occasionally will forgo the buyer's QoE in lieu of a compliance audit. This should speak volumes to buyers and sellers about the significant of compliance in healthcare M&A. Sellers who create a "culture of compliance" while simultaneously optimizing workflows (i.e., concurrent note taking by clinicians, etc.) are well positioned for value based care considerations (sorry for the cliche but it's true) which can dramatically improve valuation and/or terms.

The most important of factors, and the key reason LBO’s, M&A transactions go wrong, is management. Do the new owners have the right people in situ. Sometimes private equity will want to install their own management. In an acquisition, sometimes management of the target will want to continue in the new project and will be asked to provide equity, or roll current equity into a new balance sheet. But the qualities of management must be correct for the stage of company evolution. Do you have managers who can transform and merge a new business into a larger parent? Are the managers suitable for growth strategy. Is the business needing restructuring with sales of businesses, new finance, new customers, stripping out costs,etc.

Retention of employees is always a concern post-deal. It’s perhaps more critical in smaller businesses as it may only take a few departures to have a large detrimental impact. For these businesses it can be easier to ensure employees (or at a minimum the key employees) are aware of the situation and aren’t caught by surprise. When possible, it helps to make sure they understand the vision for the deal, so they don’t feel their job is at risk and look to leave. Of course this needs to be handled much differently for a large or publicly traded company.

We have purchased over 90 insurance agencies and we want to keep the key people in place as they know their clients best. We do utilize best practices and have an excellent reputation

Complementariedade de recursos: Ao considerar uma fusão ou aquisição, é importante avaliar se as empresas têm recursos complementares que possam fortalecer a nova organização. Isso inclui habilidades, expertise, tecnologia, infraestrutura e outros ativos que possam ser combinados para obter vantagens competitivas.

When evaluating a merger or acquisition, it is crucial to consider non-financial factors that can significantly impact the success of the deal. Some key non-financial factors to assess include cultural compatibility between the two organizations, leadership styles and team dynamics, employee morale and retention, potential regulatory and legal challenges, technological integration, and overall strategic alignment of business goals. By taking into account these non-financial aspects alongside financial considerations, companies can better anticipate challenges, mitigate risks, and enhance the overall effectiveness of the merger or acquisition process.