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17.08.2016

How to avoid the 7 deadly errors that derail M&A deals

According to latest UK figures published by the Office for National Statistics, in Q1 (Jan to Mar) 2016, there were:
– 114 successfully completed domestic and cross-border acquisitions and disposals.
– 57 completed domestic acquisitions.
– 29 completed inward mergers and acquisitions (M&A).
– 22 successful acquisitions made abroad by UK companies.

M&A activity is big business in the UK, and it’s growing; in Q1 it totalled £11.6 billion, the highest value reported since Q4 (Oct to Dec) 2008, when the figure was £18.2 billion. A recent survey by KPMG found that the top three reasons companies cite for liking to engage in M&A activity are:
(1) Fortifies their competitive position in the current market.
(2) Helps them to expand beyond current markets.
(3) Satisfies shareholder pressure to accelerate growth.

Barriers to success

However, successfully completing a large-scale M&A transaction is a complex process. There is the potential for any number of mistakes or problems to arise throughout the process. These barriers to success largely fall into seven categories:
(1) Overindulgent optimism: when one or both parties see a greater opportunity than the data is indicating.
(2) Poor structural engineering: overlooking critical building blocks, such as over-leveraged financial statements or employment agreements with essential personnel.
(3) Ineffective organisational integration: the challenge of merging organisational structures and handling employee reactions to change.
(4) Insufficient time allocation: completing a takeover is a lengthily process, which requires time to ensure it is handled correctly.
(5) Inability to execute the business plan: if weaknesses in the post-merger management team are not identified, the M&A is unlikely to be successful.
(6) Lack of proper data preparation: failing to take a measured and studious approach to organising business data.
(7) Absence of secure business tools: failing to protect valuable business data, which could be used for a competitive advantage if it fell into the wrong hands.

So what can you do to address these challenges and ensure your M&A is a success?

The secret to starting a successful M&A

When buyers and sellers enter the M&A process, initially they have very different goals in mind. For example, a buyer may primarily be concerned with the expected valuation, whereas the seller is more interested in the expected target audience. Therefore, in order to ensure the M&A completes successfully, you need to align these expectations so everyone is clear on the final outcome and working towards a common goal. This is achieved through:

Synergy savings
These are areas where the newly merged organisations can achieve substantial cost savings to maximise the business value of the transaction. For example, identifying operational redundancies or moving employees or equipment to another location.

Time

Markets and corporate spending priorities change over time. Therefore, it’s essential that all potential synergy savings are discovered, and acted upon, within a reasonable period of time. By acting quickly, you reduce the potential for “deal fatigue”, where your M&A deal is less likely to complete.

Leveraging information, resources and tools
Your success relies on securing fast access to critical, accurate, time-sensitive information, which enables you to make business decisions. To achieve this, you need robust systems that give you the ability to leverage resources and identify potential challenges and prevent mistakes.

This controlled, secure access to information, which enables timely decisions to be made about synergy savings, can easily be achieved through implementing an online virtual data room (VDR). It optimises the due diligence process by overcoming the limitations of traditional paper-based data environments. In the VDR, all documents are captured and indexed to an online database, making information discovery more accurate and complete. And since access rights are designated by the seller, tighter security and control is guaranteed. The end result is that:
– Buyers: have access to timely and accurate information to review the opportunity.
– Sellers: are empowered to protect their valuable business critical data.

M&A for data centre

Currently data centre is generally viewed as a good investment opportunity. Growth and demand are steady and it is understood that growth is fundamentally based on end user digital usage which is increasing. This is encouraging a mixture of investors to look at the sector and, in many cases, move forward with acquisitions and other investment opportunities.

The data centre market is also fragmented, with a plethora of providers ranging in size, capability and geographical reach. This is providing opportunities for existing data centre operators to consolidate their market position through M&A.

For existing operators the value of technical due diligence is usually understood. For investors and organisations/institutions outside of the data centre industry, technical due diligence is often overlooked. Opportunities are generally regarded as simple property deals.

What is not understood in these cases is that data centres are property and technology deals, with an emphasis on later. The technical capabilities of a site or portfolio can make the difference between a business that is market acceptable, and able to compete, and one that isn’t.

The stratification of data centre requirements and performance in accordance with end user demand has accelerated over the last 24 to 36 months. The result is that viewing data centres as big sheds with power is now out dated. Having a deep understanding of a portfolios performance, capacity and ability to grow and change is essential.

Future-tech: where experience meets innovation

Future-tech has provided technical due diligence on multiple data centre facilities and acquisitions, in excess of 50MW over the last 2 years. These technical services have been part of larger M&A due diligence projects with Future-tech focusing on the technical capabilities of a single property or portfolio of facilities. By highlighting issues with the estate, in terms of commercialisation, energy efficiency, resilience and flexibility, we were able to provide the timely and accurate information our clients needed in order to make an informed decision, ensuring successful completion.

In a rapidly changing market we are continually evolving our services to ensure our clients get the information they need to have the competitive edge. By focusing solely on data centre and being at the industry’s forefront of design and operation we bring specialist knowledge that consistently produces the best results.

If your organisation is considering data centre investment opportunities speak with us to understand how technical due diligence will reduce risk and ensure your desired outcomes are achieved.

Discover more about our M&A technical due diligence.

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