Preparation is key to successful M&A - CFO event 6 April 2016
In 2015, domestic and inter-Sub-Saharan African M&A reached $8.3 billion, up 39% year-on-year; the highest first nine months total since 2010. But how does one take advantage of this climate? Preparation, our assembled experts said, offering their insight into how to work on your business while also remaining fully immersed in the business.
Imraan said it is crucial to consider the make-up of your internal M&A team. "They must be individuals who have been with the business a long time and who are vested in it, so that when you make crucial decisions they are doing it with a long-term view," he said.
Telkom's Deon Fredricks said the lessons they learnt from making some serious mistakes worked to strengthen the company. "We went into Africa, Nigeria specifically, and made some mistakes," he said. "We didn't send our best people - that was our first lesson. The second was not understanding the culture. You have to understand the culture where you're going or you'll have a challenge. And the third, you must make sure the locals are part of the solution."
Deon further advised ensuring the timetable of the deal suits both parties, otherwise you'll pay "serious school fees" if you get pushed into a must-do-the-deal-now-or-else situation, he said.
"You need to understand this is your strategic framework and if the deal doesn't meet your requirements, you move on. Sometimes it's better to walk away from a deal that doesn't feel right."
You should also understand where you are in the life cycle of a firm, because M&A must help you achieve your strategic objectives, he added.
Imraan agreed, calling the question of time frame critical. "I agree that you take your time in assessing the opportunity and do your due diligence. Never be pressed into doing a deal," he said. "But once you've made up your mind, then you go hard, as hard as you can. Set timetables and stick to them. Because otherwise your deal is longer than you anticipated, and you can get deal fatigue and doubt."
Standard Bank's Andrew Balnaves said clear focus is crucial to a well-functioning M&A team:
"When you have a focused team it is outstanding what can be achieved in a very short amount of time. But you need clear direction. Once you have intrinsic confidence in that, that will come across and you won't be challenged on it, because it's already been dealt with. So you won't be tested on the strategic value of the deal."
Andrew offered a few points of advice to create momentum in a deal, which includes securing financial backing before getting started, and ensuring the readiness of your counterparty. "I recommend you don't start a transaction if your counterparty isn't ready," he said.
Nick Matthews, Head of M&A at KPMG South Africa, gave his insight into the sell side of business. "M&A processes are becoming longer, more complicated and more regulated," he began by saying. He advised running your forecasts through a valuation model and ensuring you have management's buy in. "Your real sales force is not your advisor, it's your management team, so you need their buy in. They're the guys who are going to be managing the forecast," he said. With regards to confidentiality, Nick suggested disclosing things early on in the process. "When you start approaching prospective buyers, the word is out. So my advice is, engage with your employees. Rather they hear it from you than someone else." He then offered some tips for picking an advisor, including access to buyers; senior team involvement; aligning incentives with fees; local knowledge and industry expertise; and cross-border considerations.
In closing, each panel member offered one word that they think is key to M&A success, in addition to preparation, the word offered by CFO South Africa MD, Graham Fehrsen: trust, said Andrew; understanding, said Nick; escape, said Imraan; and focus, said Deon.
Be sure you join us at the second and final instalment of our M&A series, taking place on 21 July.