How to Approach Strategic Financial Planning for M&A

Every M&A is unique, and is dependent on the context and circumstances of the deal. Nevertheless, certain factors consistently make or break deals and mergers. Here are three takeaways from my experience: 1. Strategic Alignment & Execution: Clarity on "why" you’re doing the deal is everything. It should guide decisions at every stage. In one transaction, misalignment between us and the sellers led to a tough integration process—and the departure of key team members. That lesson stuck. In the next deal, we made the “why” central to every discussion, aligning everyone around a shared goal. The result was a smoother process, strong team retention, and long-term success. 2. De-risking deal roadblocks: Every deal comes with risks—but they aren’t one-size-fits-all. Evaluating risks in the specific context of the buyer, seller, and market is critical. Use data to dig deep into culture, product, financials, and go-to-market risks, and create actionable plans to mitigate them early. 3. Process & Integration: Closing the deal is just the start. A clear integration plan that ties back to the why we did this deal with well defined milestones can expedite ROI. At the same time, flexibility is key. Start with a well defined plan but stay agile and ready to change as the integration progresses. 

Here is something I often see in SMEs: A company is approached by someone they know or an investment bank about an M&A opportunity. The target looks interesting, and they jump on that opportunity. Sounds familiar? There are two big problems with that approach: - The company hasn't discussed M&A with the board of directors and other stakeholders as a tool to achieve its long-term strategic goals, so the transaction comes as a surprise to them. - The company hasn't screened the market to see whether other M&A targets may be a better fit. To avoid that, it's vital first to develop a clear understanding of how M&A can help achieve the company's long-term objectives. Here are a few of those reasons: - Industry Consolidation: The target helps you to increase the market share - Diversification: The target helps to expand your product and service offering - Geographic Growth: You can grow in other areas and countries - Talent Acquisition: The target has talented people that you need - Financial Gain: The target will improve the financial results of the group - Turnaround Opportunity: You can turn around the target and improve the financials significantly - Time to Market: The target will help you to be quicker on the market with a specific product/service - Tax Optimization: You can improve your overall tax position with the target Once you have a good understanding of how M&A can help you achieve your company's long-term goals, it's time to discuss it with your stakeholders, especially the Board of Directors and financing partners, and get their buy-in. The next step is developing an M&A target pipeline and assessing the companies with quantitative and qualitative criteria on an M&A scorecard. Using internal knowledge and external help from investment banks and advisors is crucial. Otherwise, you may miss some targets that would be a better fit. But you don't stop there. It's critical to continuously check that the M&A strategy aligns with the company strategy. We live in a quickly changing world, and companies must adjust their strategy to the changing economic environment. The same applies to the M&A pipeline. New companies can be added, others must be eliminated, and some assessments may change because the target changes. In summary, a process-driven M&A approach may be more work, but it adds significant value and increases the ROI and probability of a successful transaction. Read more about it in my latest blog post. Enjoy!

Most firm acquisitions fail before the ink dries. Here's my lesson from 13 years ago... This weekend I was revisiting a 2011 Harvard Business Review article, The New M&A Playbook, and it felt like it was written for today’s accounting M&A market. Here’s the core idea: every acquisition fits into one of two categories, and knowing the difference is critical. 1. Leverage My Business (LBM): This type of deal is about improving operations. You’re buying resources—clients, talent, or systems—that fit neatly into your existing model. The playbook is to reduce costs or increase pricing power. Example: A $10M regional firm acquires a $2M payroll service provider. The parent firm expects to fold in 500 payroll clients, streamline operations, and cut redundant staff. What happens when client attrition is higher than expected? Or when incompatible systems lead to rework and delays? LBM deals fail when firms overestimate synergies or underinvest in integration. The key to success is clear: integration must be fast, frictionless, and focused. 2. Reinvent My Business (RBM):     This is where the game changes. RBM acquisitions are about transformation not efficiency. You’re not just buying resources; you’re buying an entirely new business model. Example: A $10M tax-focused firm acquires a $3M virtual CFO practice specializing in SaaS companies. The acquired firm is growing 40% year-over-year, driven by subscription-based revenue and an average client lifetime value of $60K. The temptation is to merge everything. But that’s where many firms go wrong. RBM acquisitions thrive when left alone. The new business model should operate independently, free from the processes and cost structures of the parent firm. The $3M firm could grow to $10M in five years if left to run its course. But force it to adopt the parent firm’s slower billing cycles and manual reporting, and you risk cutting its growth in half. RBM deals fail when firms try to integrate what should be kept separate. The HBR article highlights a critical truth: the price you pay and the strategy you use should match the type of acquisition. LBM deals are about squeezing efficiencies. You’re paying for predictable synergies. The payoff happens quickly or not at all. RBM deals are about long-term growth. They often look “overpriced” because their value lies in the future. Most failures happen because firms mix these strategies. They overpay for synergies in an LBM deal or suffocate an RBM deal with forced integration. My Take: If you’re considering an acquisition, ask yourself two questions: • Are we buying to scale or to transform? • Should this firm be integrated or left independent? An LBM deal should boost your current business within 12 months—or it’s not worth the price. An RBM deal should chart an entirely new course for your firm. If you don’t see disruptive growth potential, walk away. --- See more of these firm acquisition teardowns in my firmlever.com newsletter.

Acquirers: Valuation is just the opening move when it comes to M&A. I’ve had three discovery calls recently with companies that started off with “We came across a company that we may want to acquire. We need some help with valuing the target”. Yes, valuation is super important but that’s just where it starts. Beyond the valuation, make sure you understand what comes next and be prepared to solve for long-term value. Here's just a few (in no particular order). 1️⃣ Understanding the components of the value - what is the intrinsic value of the acquisition target (without the acquirer in the picture) and what additional value the acquirer is bringing to the table 2️⃣ Structuring a win-win deal that incentivizes the target to do the deal but also maximizes the value of the business after close. This requires iteration and creativity. 3️⃣ Knowing the high-risk areas in the deal, and scoping the right diligence areas to uncover and mitigate these risks 4️⃣ Building internal conviction with the exec team and the Board that the deal and the target’s management team will advance the acquirer’s strategic goals 5️⃣ Ensuring that you have (or will have) the right integration plan at the right time to convert the “on paper” valuation to concrete business value We can start solving for the opening move but also be ready for what comes ahead 10…20.. 50 steps down the line. #mergersandacquisitions #valuation #diligence #integration