Evaluating M&A Opportunities: A Proven Guide

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The four questions every leader should ask when evaluating M&A opportunities

M&A is one of the most powerful growth levers a company has. It's also one of the most disruptive.

Over the course of my career leading professional services organizations, I have led more than 20 mergers and acquisitions. That M&A activity was central to scaling Baker Tilly from $475M to $1.5B in 8 years, and it is once again central to what we are now building at Nichols Cauley.

When done right, M&A enables strategy, accelerates organic growth, and strengthens your ability to stay relevant and sustainable. When done wrong, it produces a disjointed organization that is just an accumulation of revenue.

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

It is a question I get a lot, and one that is top of mind for me as we work through the recently announced combination of The Molieri Group with Nichols Cauley, the first of several deals in our pipeline.

There are four questions every leader should be asking when evaluating whether an M&A opportunity will be a long-term value add. And I'll use the Molieri Group as a real-time example to explain my thinking.

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

Some time ago, I was advising a leader at an organization who was considering acquiring a $7M company. We got into the numbers and I hit pause.

"Okay. Set the numbers aside for a minute. They sound good. But what is the strategy behind this?"

It is easy to be dazzled by the numbers. The numbers are what they are. The more important question is whether the deal advances your strategic priorities as a company.

A good M&A opportunity might open a new geography, bring a new technology or automation capability into the organization, add a new service or industry capability, or strengthen and extend the brand. Those are all intentional, strategic things. But if the combination does not enable your company strategy, what’s your real intention behind it?

My predecessor used to say, Bigger isn't better. Better is better. Accumulating companies for the sake of revenue does not equal long term success. Every deal has to align to strategy.

To use the recent example of The Molieri Group, this was the easy part. It was a capability play, not a pure revenue play. They brought specialized international tax and complex planning expertise our clients have been asking us to deliver, and it slotted directly into the integrated services platform we are building to help small to mid-sized businesses and their owners manage, protect, and grow their wealth.

2. Will it enable future, increased organic growth?

Great M&A should be more than a "merger" or "combination." Those indicate deals that are additive in nature. Great deals should be multipliers. If the move is aligned to strategy, it should be a 1+1=5 scenario, because the acquired company should make the combined organization capable of more than either could do alone.

That might mean a capability that automates work or sharpens decision-making across the company. It might mean a new service line you can now offer to your entire client base. In addition to the revenue the acquired company already carries, you should get multiples on top of it through collaboration and cross serve opportunities throughout the company.

The Molieri integration is a good example. Their expertise does not stay in Miami. It plugs into our entire client base across the Southeast. At the same time, the broader Nichols Cauley platform becomes available to their clients overnight. So now, the idea of a multiplier is working in both directions. From my experience, that's the measure of a great deal for both parties.

When M&A is aligned to strategy, it acts as a multiplier by enabling organic growth.

3. Will this move enhance our culture?

The people side of M&A is the hardest part. It is also why these deals can be so disruptive. You are bringing two organizations, each with its own identity and way of working, under one roof.

Notice that I said enhance our culture. People get afraid of M&A changing their culture. Well, of course it will change your culture! How could it not?

But culture is not meant to be protected. If you enter a deal believing you have to defend your culture against the company you are bringing in, you already have the wrong mindset.

It's about blending the two organizations into a new, enhanced culture.

Of course, when you're evaluating a deal, it's critical to understand the company’s culture, how they connect with one another, and what they actually value as an organization. Those things matter and need to be closely aligned to how you already operate as a company.

But notice how I said values, not operating principles. "We do it this way" has nothing to do with culture and values. Those are rules. Does the organization value culture, client service, collaboration, candidness, and transparency the way you do? Those are the values I am talking about.

Have the conversations. Spend time together. It becomes clear pretty quickly whether alignment exists or not.

If the values are aligned, you can work through the differences in how the day-to-day work gets done. The Molieri team had been courted by a number of larger organizations and chose Nichols Cauley based on what we are building. That decision alone told me a lot about what they value, and every conversation since has reinforced it.

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

Like a morning cup of coffee with cream, the organization needs a little stirring before the new company actually integrates. Hope is not a strategy here.

I've learned how important it is to be intentional about pulling leaders from the newly acquired company onto leadership teams and committees. Those leaders become culture carriers in both directions. They experience the broader company and bring it back to their teams, and they bring a "rookies" mindset into the room. Not rookies in a capability sense, but new perspectives that the existing company has not heard. Those perspectives are often where the next round of great innovations comes from.

The integration philosophy I keep coming back to, and the one we are applying with Molieri, is a dual mandate. First, let the acquired company keep doing what made them successful. That is why you decided to combine with them in the first place. Do not break it or interfere with it. Second, layer in new collaboration opportunities through the broader company and connect them into the organization in deliberate ways.

There is a meaningful difference between doing things to people and doing things with them. Integration done with a company creates momentum. Done to a company, it creates resistance. Intentionality matters more than proximity.

Successful integration will not happen on its own. Deliberate effort and deliberate decisions to enable two-way integration are makers of successful M&A deals.

Final thoughts

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

If you are weighing whether to acquire or merge with another company, ask yourself these four 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 company into the existing company?

If the answers are yes, it's likely a real value add and a good deal. If any answer is no, I'd challenge you to take a step back and consider if you are being blinded by the numbers.

We are in the early innings of an exciting journey at Nichols Cauley, and Molieri is the first of several deals in our pipeline. Every one of them gets put through this same checklist before it moves forward. That is how we will continue to ensure that our M&A activity aligns with our strategy and enables future growth at Nichols Cauley.

I hope this helps you in evaluating any opportunities of your own. Feel free to reply back with any questions if you have them.

With intention,

Alan Whitman
CEO at Nichols Cauley

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