Business management

All About M&A

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Our M&A (mergers and acquisitions) journey started in 2010. Basically, what happened is that we had the opportunity to buy back the company we’d sold five years earlier, and that’s what we did. We got to know the company in 1999 and bought it in 2002, restructured it, and sold it again in 2005, when it was growing and making a profit. In 2010, it was no longer growing or making a profit, so we thought of buying it again...and restructuring again, too! We believed we could ‘bring our magic’ a second time, and... What can I say? We were extremely successful.

After about one year we had a clean company again: it was making profit, with happy customers and happy staff. So we said, ‘hey, this was cool, this generated a lot of value for the company, and on top of that we have a CRM market where we can be active’. We had (have!) hundreds of competitors --really small ones-- and we enjoyed the process of creating value by getting a target and adding it to our ranks. That’s how we decided we’d continue on this mergers and acquisitions journey.

Our mergers and acquisitions adventure.

From 2010 onwards, we bought about one or two companies a year. By doing so, as well as by increasing the frequency, we also started to build the processes to do that quickly, well, and better than the previous acquisitions. Nowadays, apart from being our own company and having our own culture, we’ve also become a true acquisition machine -- to the point that nobody is surprised to know we’re acquiring a new company. Just a 15-minute briefing to the team, and we’re good to do!

Of course, there’s a dedicated team for integration: our PMI (post-merger integration) team. They have really strong processes that involve every step of the integration process. We learn with every new acquisition, of course, so it’s an evolving process, but so far, it’s a very effective and structured one. Shortly after signing a deal with a new business, we start integrating. Our goal is to have a company in a new market that’s ready to work as well as possible, as soon as possible. Over the years we’ve acquired the skills needed to be able to scale that kind of integration very quickly.

How do we determine the value of a company for acquisition?

We chose to focus on mergers and acquisitions because of our first very positive experience with it. It’s a relatively cheap way of growing the business, so this is also why we decided to dedicate some time and resources to M&A. It’s not the only focus of the company, of course. We also like to grow our business organically, and this is information that definitely comes in handy when we’re acquiring a new company – we’ll say to them, ‘hey guys, we’re growing 20%, how much are you growing?’ and if they’re growing more than us, okay, we will copy them -- but if they’re not, then that helps us know which processes we’ll need to implement to make them grow faster and better.

Before acquiring, we evaluate our prospect based on three pillars that are really important for us:

  • Geography: If we are strong in a geographical market, we can buy any kind of company there. If we’re not, we like to enter the market with a big acquisition.
  • Performance: We prefer to acquire companies that are both profitable and growing, than the opposite. If this is a loss-making company, we might acquire it, but it would be a rare case. We prefer to have healthy businesses.
  • Product match: We have a roadmap for product development with M&A, so we evaluate the possible new acquisition under that criterion on a scale of 0-4.

After the evaluation, we get a score, and then we match that score with the size of the company (because we don’t aim to buy small companies, we prefer to buy more mature ones). If the size and strategy fit are both okay, we choose to proceed. We also have a formula to help us calculate the company’s potential value, and that’s how we get to the first offer we make. Of course, after that, negotiations and discussions are bound to happen in order to try to reach an agreement.

Benefits and challenges of M&A.

Aside from the strategic fit, we also have a cultural assessment of the company, which tells us how fast we’re going to do the PMI. We do things a bit differently (or stick to our original process) depending on that result. When evaluating a possible new acquisition, we also need to ask ourselves, how much time and energy would we need to make the target? For example, if we do it ourselves it’s going to cost us “X” amount, and if done by acquiring it’s going to cost us “Y” amount, but it would come with more benefits. In that case, it’d be more profitable for us to go the M&A route. There are many factors that need to be taken into account when evaluating whether or not to acquire a new company, and every decision is made after careful consideration.

The biggest risk and therefore also the biggest challenge of mergers and acquisitions is probably the integration process. The rest sort of follows a ‘recipe’ and procedure and so it’s relatively easier to master, but the risks you can’t mitigate much are the integration risks. You can’t really predict 100% how the people who make up the company will react when you acquire it. You will always have good and bad reactions, and at the beginning, it’s also a bit hard to tell who are the real key people of the newly acquired company. For all of these reasons, I’d say integration is definitely the biggest challenge in M&A.

This is a first criterion for success: did this investment increase our equity by more than the price it took to acquire? Are we getting a good ROI? Is the value coming back in the equity? I also like to keep a good spirit in the global company, so I like our acquisition to be friendly. Therefore, for me, a good mark for success is to be able to keep the key people on board. In many cases, an indicator for success in the PMI process is how many of these key people we were able to retain. It’s always expected to lose some staff with an acquisition, but because in efficy we really value people, we need to care for our staff as best we can. If we’re managing to keep the staff, I’m satisfied.

Another important indicator of success is increasing customer satisfaction – and this is a hard one to do. Customers will usually need to change processes because their previous company is now under efficy, and change is always hard for everyone. It’s expected for customer satisfaction to be lower for a while, as they adjust to the change, but we want it to get back to normal (and increase!) as soon as possible. Our customers are incredibly important to us, and we are always keeping their best interest in mind.

It’s a long way to the top if you wanna rock n’ roll.

I believe the European CRM market is not completely consolidated yet, so there’s still time to continue using M&A as a strategy -- there’s a lot of opportunities for us to continue growing in that way. Also, as we acquire, we also become better at integration, and we do it all quicker and with more efficiency. So, in the future, we will most likely continue to acquire new companies and we’ll aim for even bigger targets.

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