M&A is a forever-evolving aspect of strategic planning. And the learning, quite honestly, never ends.

When companies get past the start-up stage and focus on accelerating growth with the help of private equity, M&A is nearly guaranteed to be part of the equation. But it is also likely to be the management team’s first time thinking through an M&A strategy and how it fits into their overall growth plan.

When I first started this journey — even before my role as CEO at WizeHive — I took every chance I could to lean on the people around me for how to think through the role of M&A in my company’s growth strategy and find the right opportunities.

A VC at the time told me I needed to think first about my own fixed set of criteria before looking at any opportunities. If I had a clear understanding of our goals, how M&A would help us achieve them, and what an ideal acquisition looked like, then I could get started — rather than figuring it out retroactively. There are lots of opportunities out there, but without some basic screens in place, you’ll waste time on things you shouldn’t.

M&A is a forever-evolving aspect of strategic planning. And the learning, quite honestly, never ends. But with these and a few other fundamentals in our mindset, we closed our first acquisition at WizeHive in six months’ time.

In addition to continually learning from my peers, I find educating and sharing my own experiences just as important. I recently teamed up with LLR’s Head of Strategy, Sarah Long, to host a conversation among LLR’s portfolio company CEOs and CFOs about how to build M&A into your strategic planning process. Let’s dive in!

Considering both organic and inorganic growth also pushes you to start thinking about core market discipline…

When to think about M&A during strategic planning

Allowing for the possibility of M&A as part of your strategic plan from the outset enables you to think about the company’s growth strategy in new and different ways — something I learned firsthand was highly valuable with WizeHive. It allows you to have an unbounded view of what’s possible rather than feeling constrained by the resources you only have available today.

Considering both organic and inorganic growth also pushes you to start thinking about core market discipline and the segments where you can successfully grow. Consider questions such as:

  • What do our target customers/users need?
  • Do the products and services we offer today meet that need?
  • What would give us a competitive advantage?

It’s never too soon to start thinking about M&A in the investment period. In fact, it’s often a significant part of the conversation with private equity firms before they invest in you.

WizeHive, which started by selling lifecycle management software for grants, scholarships, and fellowships, is now well-positioned as a SaaS platform for managing corporate social responsibility initiatives following our acquisition of Bright Funds, a provider of workplace giving and volunteerism solutions. We didn’t limit ourselves to organic growth from the beginning, and I don’t think we would have been able to build on our value proposition while remaining true to our core markets if we hadn’t.

It’s never too soon to start thinking about M&A in the investment period. In fact, it’s often a significant part of the conversation with private equity firms before they invest in you.

When thinking about including M&A as part of their strategic plan, Cheng Li, Principal at LLR, advised CEOs in our conversation to ask themselves:

  • What are we trying to build toward? What is our North Star?
  • What is the market size of where we participate today?
  • Can our current markets support us in reaching that North Star?

By addressing these fundamental questions, Cheng advised, companies can then work backwards to decide whether they should enter other segments or markets via M&A to help attain their growth objectives and make the business more attractive to specific sellers.

5 best practices for incorporating M&A

Cheng, Sarah and I, along with several CEOs and CFOs in the discussion, uncovered five essential pieces of advice for others figuring out how to incorporate M&A into their strategic plan.

Set some parameters for yourself around culture fit and decide in advance what your walkaway point will be if they aren’t being met.

  1. Think about your broader ecosystem and the problem you are ultimately trying to solve for your customer. At WizeHive, we try not to solely focus on what we offer, but rather, think in terms of our clients’ broader needs. Consider the ecosystem of competitors and adjacent vendors your customers leverage to fulfill those needs. Look at any adjacent businesses serving related needs for your customers. Are your customers getting what they need in an effective way? Can you serve more of your customers’ needs or “complete the journey” by augmenting what you currently offer? Let that exercise shine the light on where else you can deliver value with low barriers to entry, while eliminating the feeling of having to “do it all”.
  2. Understand and over-communicate “the why.” It is essential that everyone involved in the transaction has clear lines of open communication, ensuring that all parties understand “the why” behind each decision. M&A is a full team effort so it’s critical that everyone is working towards the same goal and has the same information when making decisions in their area.
  3. Don’t get tunnel vision. It is imperative to incorporate optionality when thinking about M&A. Markets are forever changing, so planning an M&A strategy solely according to a specific forecast or certain target can backfire. Always consider how your plans can (and will) adjust if certain market assumptions do not come to fruition. Building optionality into your plan allows you to easily adapt.
  4. Maintain a healthy level of skepticism around synergies. While your private equity team and CFO might build out careful models for how revenue synergies will ideally work, having a healthy skepticism for those synergies not all going to plan is also wise. How will you right the ship if things don’t go according to expectations?
  5. Have a contingency plan for bad fits. It’s OK to walk away. We all know that calling off a deal is better than forcing the integration of one with a bad cultural fit. But, it’s easy for CEOs and M&A teams to get so mentally invested in a transaction that it creates blinders. Remember, you can’t fix everything. This is something that naturally optimistic CEOs tend to forget. Set some parameters for yourself around culture fit and decide in advance what your walkaway point will be if they aren’t being met.

Assessing an organization’s readiness

Determining whether or not your company is ready to pursue an acquisition ultimately comes down to prioritization. M&A is, to some degree, always an option — but is it one of the primary levers that will move the needle for you this year and help you achieve your long-term goals? M&A can be a great accelerator — if you are accelerating on the right path.

Consider whether you have the leadership in place, as well as other people, resources, and business processes to take on M&A

Once you make a judgment on strategic priorities, then consider whether you have the leadership in place, as well as other people, resources, and business processes to take on M&A. You don’t need 100% of the required resources today, as you can always hire and obtain what is needed down the line, but it’s important to remember that readiness isn’t just about sourcing, evaluating and closing a deal. It’s also about effectively integrating two companies and fully realizing the value creation potential of an acquisition.

One final consideration is cost versus benefit. To assess, ask these three basic questions:

  1. Is M&A or the specific deal in front of you one of the 3-4 things the company should focus on this year?
  2. Will the cost of this opportunity take up too many resources for it to benefit the organization over time?
  3. Are there other avenues available to achieve the same company objectives?

Accounting for the big picture

As with all business decisions, always look at the full picture.

M&A is a great opportunity to expand your resources and open new avenues. Stepping back — with an eye on strategy — will help you better understand what is best for you and your company.

This GrowthBit is featured in LLR’s 2023 Growth Guide, along with other exclusive insights from our portfolio company leaders and Value Creation Team. Download the eBook here.