Private Equity & Venture Capital Insights: How to Help a Portfolio Company Achieve Merger Success

According to Harvard Business Review (HBR), up to 90% of all mergers and acquisitions fail. While these this can be a harrowing number, it doesn’t have to be your reality.

If you’re considering taking a portfolio company through an M&A event, there are steps you can take to help the effort go through successfully. From initial target evaluation to post-merger integration, this is an enterprise-wide strategy that requires active participation from key stakeholders. 

Today, we’re taking a closer look at how you can help a company ensure merger success, one step at a time.

Positioning an Organization for Growth

If a company in your portfolio is struggling, the only way forward is often through a business turnaround. As you’re undergoing this process, you’re likely keeping a close eye on ways you can make the company investable again.

Many times, this means strategizing a future liquidity event. This might be an acquisition, merger or anything that allows founders and early investors to cash out a portion or all their ownership shares. 

Why Hire a Consulting Partner?

The statistics from HBR point to the fact that mergers and acquisitions are not always as cut and dry as they seem, nor are they as successful. This is why it’s important to hire an M&A consulting firm.

You should ensure your consulting partner can help you create a framework for pre-merger analysis as well a 100-day roadmap for post-merger integration planning and execution.

Why is it important to move quickly? Consider the acquisition of biotech company Genzyme by French pharmaceutical company Sanofi. As the effort unrolled, both sides wasted no time in preparing their teams for the new normal.

Under executive guidance, Genzyme streamlined manufacturing, opened a new plant and simplified operations to remove bottlenecks. The company also moved some of its sales and marketing functions under the Sanofi brand and strategically reduced its salesforce.

The result? The integration was successful, leading to $700 million in cost reductions. Within one year, Sanofi enjoyed 5% revenue growth, catapulting to 17% the next year.

While you’ll have plenty of items on your to-do list, working with a consultant to develop a 100-day merger and acquisition integration roadmap should take precedence. You should begin developing this roadmap before the merger is completed to ensure alignment upfront and enable swift execution on day one. 

5 Tips for Helping a Portfolio Company Achieve Merger Success

1. Conduct a Pre-merger Readiness Assessment

Before you begin discussing the possibility of a liquidity event, it’s important to determine if the company in question is even ready to undergo such a change. 

We recommend conducting a SWOT analysis to assess the current state of the organization. Then, consider the following factors:

• The ability of the organization to achieve its business goals
• The effectiveness of current processes 
• The organizational structure
• The organization’s current technology

Taking all this information into account, you can better understand if a merger is the right path forward or if more operational restructuring is necessary.

2. Review Key Performance Indicators

Before looking at merger and acquisition targets, it helps to review the portfolio company’s KPIs and compare them against industry benchmarks.

These KPIs might relate to:

• Employee retention
• Customer retention
• Expenses, margins and profits
• Productivity and efficiency
• Sales and revenue

Once you understand where the company is falling short, you can define strategic objectives that will inform your choice of merger and acquisition targets.

3. Look for the Right Buyer

Not every interested buyer will be a great fit for the organization.

As you evaluate your options, keep your initial SWOT analysis in mind. The ideal buyer will be one that allows the company to capitalize on the opportunities identified in this SWOT analysis. This buyer should also be someone with the tools and resources necessary to turn the company’s weaknesses into strengths.

As you sift through the options, it’s important to identify the possible synergies you could create with each company. We recommend comparing the SWOT of the portfolio company with the SWOT of each potential acquirer.

4. Create an Integration Roadmap

As mentioned earlier, it’s essential to find a consulting partner that can help you develop a 100-day roadmap for post-merger integration. This roadmap should include 30, 60 and 90-day milestones for each functional area.

It’s also important to map out milestones for organizational alignment as well as change management because you likely will be deploying new business processes and/or new ERP software that further change the status quo.

5. Address Culture

Once the M&A integration is underway, you must manage the integration of company cultures with the same discipline and rigor as the operational and financial integration. At the same time, you should reorient both organizations around collaboration, accountability and bottom-line value.

Often, this shift will require at least some degree of organizational change management. If you’ve conducted a business readiness assessment during the pre-merger phase, you can use this to determine just how much change management will be necessary.

Ensuring Merger Success, One Step at a Time

Any time you’re contemplating a merger or acquisition for a portfolio company, it can be an unnerving time. However, there are many ways to avoid common pitfalls and improve your odds of merger success.

As you get started on this journey, it’s best to partner with a merger and acquisition consulting firm that has walked this road many times before. If you want to achieve the efficiencies of a merger or acquisition and have a fully integrated company within the first 100 days, request a free consultation below.