A proven guide to evaluating M&A opportunities

During my time as CEO of Baker Tilly US, we completed 20+ mergers & acquisitions, which played a critical role in our ability to scale from $475m to $1.5B in 8 years.

While M&A played a big role in our growth strategy and success, the reality is that they can be very disruptive.

When done right, they can enable strategy, increase organic growth, and further your ability to remain relevant and sustainable as a firm.

When done wrong, they can lead to a disjointed firm that simply becomes an accumulation of revenue.

So how do you tell the difference between the right opportunity vs the wrong one?

I’ve had a few of you ask me about my process for evaluating M&A opportunities, so today, I want to talk you through my M&A checklist.

There are 4 questions that you, as a leader, should be asking when evaluating if an M&A opportunity will be a long-term value add for your firm.

While I can’t provide a silver bullet to guarantee M&A success, I can share from experience what I’ve seen work more times than not.

Here are the most important questions you should be asking:

Does it help us achieve any of our strategic intentions?

I was recently advising a leader at one of my client firms and we were talking about the opportunity to acquire a $7m company.

We got to talking numbers and I hit the pause button on our conversation.

“Ok, let’s set the numbers aside for right now. They sound good… but what’s the strategy behind this?”

When evaluating an M&A opportunity, it’s easy to be dazzled by the numbers. But the numbers are what they are.

The more important question is: does it allow you to achieve or further your strategic priorities as a firm?

For example, an M&A opportunity might:

• Allow you to enter a new geography

• Bring a new technology or automation capability to the firm

• Bring a new service or industry capability

• Further build and enhance the brand

Don’t get blinded by the numbers.

If it doesn’t enable your firm strategy, don’t do it!

My predecessor used to say: Bigger isn’t better, better is better.

Accumulating firms for the sake of increasing revenue doesn’t equate to long-term success.

Any opportunity to purchase a firm or merge needs to align to strategy.

Will it enable future/increased organic growth?

In the recent Baker Tilly and Moss Adams merger, there was a very particular phrase that was used to describe the move.

Did you catch it?

"More than a merger. A multiplier."

"More than a merger. A multiplier."

This is exactly how I view evaluating any M&A opportunity.

If the move is aligned to strategy, it should be a 1+1=5 scenario because the acquired or merged-in firm should enable the combined firm to do more than it could before.

That might mean you acquire a company with a new AI capability that increases automation or allows you to analyze data across the firm to make better decisions.

Or, maybe you acquire a firm that allows you to deliver a new service offering. By acquiring the firm, you can now offer the new service to all of your existing clients.

So, in addition to the revenue the newly acquired firm already has, you now have the opportunity to add multiples to the revenue through cross-serve.

When M&A opportunities are aligned to strategy, they should act as multipliers by enabling future organic growth.

Will this move enhance our culture?

The people side of M&A is the most challenging.

It’s also why I say they are so disruptive.

You can’t ignore the fact that you’re bringing two separate organizations that have separate identities and ways of working together under one metaphorical roof.

Now, notice I said enhance our culture.

People get afraid of M&A changing their culture…

Of course it’s going to change your culture!

How could it not?

Culture isn’t meant to be protected. If you enter into the process with the expectation you have to defend your culture to a newly acquired or merged firm, you’re already losing.

It’s about blending the two firms to create a new, enhanced culture.

How do you know if a move will enhance your culture?

Well, truthfully, you don’t. Not with 100% certainty, at least.

But you have to do due diligence on the culture of the firm you are buying and figure out:

• Who are they?

• How do they connect with one another?

• What do they value as an organization?

From my experience, I’ve learned that as long as your values are aligned, you have a chance of being successful.

I said values, not operating principles.

“We do it this way” has nothing to do with culture and values; those are just rules.

Does the organization value things like culture, client service, collaboration, candidness, and transparency similar to yours?

Those are the values I’m talking about.

Have conversations. Spend time together. Share a meal with leaders from the other firm.

I’d suggest that it will become clear rather quickly if alignment exists or not.

If the values are aligned, you can overcome differences in how you do the work on a day-to-day basis.

Do we have an intentional plan to integrate the new firm into the existing firm?

Just like your morning cup of coffee and added cream, the organization needs a little stirring to ensure the new firm integrates successfully.

Hope is not a strategy.

When we bought a firm, I was intentional about finding ways to get people from the acquired firm involved in leadership teams and committees.

This enabled those leaders to become culture carriers.

They experienced the culture of the firm and brought it back to their teams.

But it wasn’t a one-way street…

The existing firm also benefited because we could bring “rookies” into the room.

Not necessarily rookies in the sense of their capabilities, but new perspectives to the firm and to the roadblocks we were facing.

Those new perspectives often resulted in new ideas and innovation opportunities to enhance the way we were operating.

The key here is to be intentional—successful integration won’t happen on its own.

Final Thoughts

M&A can be a powerful growth engine when it’s approached with the right intentions and in the right way.

If you’re considering whether or not acquiring or merging with a firm is a good decision, ask yourself these 4 questions:

1. Does it help us achieve any of our strategic intentions?

2. Will it enable future/increased organic growth?

3. Will this move enhance our culture?

4. Do we have an intentional plan to integrate the new firm into the existing firm?

If the answers to those questions are yes, it’s a good sign that the opportunity you’re evaluating will be a value add to the organization

If the answer(s) are no, you’re likely being blinded by the numbers…

Helping firms consider organic and inorganic growth strategies is one of the many ways I assist firms as an advisor.

Having been in the seat and successfully navigated the same growth journey, I can often ask the right questions to help steer leaders in a direction that will benefit them the most.

If you’d be interested in speaking about your firm goals and strategy, I’d welcome the opportunity to explore if and how I might help.

With intention,
Alan D Whitman