If you’ve joined a successful startup as CFO, chances are at some point you’ll have to take the reins to manage a merger and/or acquisition. The use of acquisitions to redirect and reshape corporate strategy has never been greater. Many investors today regard buying a company for access to markets, products, technology, or management talent as less risky than gaining the same objectives through internal efforts.
A study by Harvard Business Review found that 70%- 90% of corporate acquisitions end in failure. Add a multi-million Euro price tag and the stakes become very high.
An acquisition period is often associated with tension and uncertainty, with the added pressure of an increased workload for your Finance team. In this guide, FiSearch combines forces with Monique Jaqqam to offer CFOs advice on preparing your startup for an acquisition.
About our expert
Monique Jaqqam is the CFO at Basecamp Student. Their student housing facilities are located in some of Europe’s wealthiest markets with real estate based in Denmark, Germany and Poland. With her in-depth financial knowledge spanning over 23 years in European Hospitality and Real Estate, Monique recently helped sign a €939m acquisition with Xior Student Housing.
Before we get into balance sheets, due diligence and legal, let’s start off with a few quick words of advice from Monique:
- It’s not rocket science. Split work into smaller tasks. It IS manageable.
- Find space to get new energy. Encourage your team to understand what that means for each of them. You’ll need all your energy, nights and weekends, so know where to go for a recharge!
- Keeping your team motivated. Regular communication is vital. Know your teams’ strengths so you can tailor your level of support based on their level of experience or skill.
- Fake it until you make it is not an option. This is not the time to apologise for ‘still not understanding”. Make sure you ask questions until you get to the bottom of an issue. Don’t stop until you’re satisfied with the answer.
- Get your house in order. If your balance sheets, budgets and cash flows are reviewed there’s little that can happen that throws you off track.
- Don’t leave anything up for assumption. Remind yourself frequently that investors don’t know anything about your business.
Let’s start at the beginning, shall we?
You’ve negotiated the purchase price, now what?
Sharing the news with your finance team
First things first. After the news of an acquisition, your first course of action should be to honestly and transparently communicate the news to your finance team. Monique’s advice is to be very open with your team about what this transaction would mean for them and what will be expected of them in the months leading up to the deal. Share details with them about confidentiality clauses, set expectations on an increased workload and remember, if you think you are communicating too much, you are most likely not!
Your finance team will be doing the largest chunks of work leading up to the transaction, so make sure you have a weekly call with teams to share an update on where you stand with the transaction.
Your finance team deserves consistent updates so that everyone’s aligned when new requests come through from the deal team. You don’t want to be that CFO who has your team scramble to get the answers together without having the bigger picture.
Pick your contenders
Building your deal team
The Basecamp-Xior transaction required a deal team of more than 30 stakeholders to successfully manage investor requests and queries on both ends. According to Jaqqam, they elected two Deal Captains, one representing each entity early on in the process.
Next up, define which stakeholders get involved in:
- Financial Due Dilligence
- Legal Due Dilligence
When creating a deal team, Monique’s advice is that you want to ensure you have a variety of complimenting skills.
As CFO your job is to know which skills and resources are best suited to get involved in various stages of your financial due diligence. Choosing the right person for the right job early on is crucial for a successful close and will save you time in the long run.
On the ground advisors
If your deal team is working across countries, or even worse, continents, you’ll want to make sure you have on the ground Tax Advisors and Transaction Lawyers.
Having local advisors will give you a much-needed overview of tax implications that may arise for your specific type of deal. Local tax advisors will also be able to assist and guide you during the sequence of processes once the acquisition is closing.
It’s called Due Diligence for a reason…
Set up a Data Room
If you’re a startup, chances are your finance team might not have excessive experience with Due Diligence, or in many cases, no experience at all. Monique’s advice for getting started is to set up a Virtual Data Room for your team where they can efficiently and promptly work on queries. A Data room will also help your team manage and keep track of all relevant legal forms and documentation.
“Our team did a brilliant job regardless of the fact that many of them were going through a due diligence process for the first time. Getting a Data Room set up will create structure and a roadmap for the coming months.”
According to Jaqqam, they had more than 1,000 queries to manage and distribute across Legal, Tech and HR during their Due Diligence phase, so it’s pivotal to have a platform where stakeholders can map out their acquisition to-dos. The Basecamp team used award winning deal platform Venue for their Virtual Data room. Another word of advice from Monique is to remember that you can only control data to an extent. For the Xior acquisition Monique and her team were working across eleven properties and five or six different legal entities, so it’s important that as CFO you are seen as a gatekeeper for queries or questions regarding financial data. Monique suggests challenging your investor and your own team by asking: What do we think best fulfills this request or do we think this could be solved over a quick call?
Managing these requests with a healthy level of filtering will enable your teams to focus on priority requests without just throwing stuff at your investors to try figure out themselves.
Getting your house in order
Monique’s biggest word of advice on having your house in order is to keep in mind that this starts well before a due diligence process. Startups are typically not set up for reconciled accounts, so work at getting your finance department set up so that you can confirm with investors early on that you have the basics in place, and are ready to go when a transaction occurs.
We started getting our house in order three years ago when I joined Basecamp as CFO. When you join a successful startup, you always have the likelihood of an exit in the back of your mind. Be proactive about it. The work we’ve done over the last 3 years paid off. Nothing beats being able to say to investors ‘yes, of course we have that.
A successful transaction will always come down to the basics. Can you trust your balance sheets? What are your main business drivers? What’s your occupancy rate and average rent across locations? Do you know your financials inside out and have you got data, processes and automation in place to provide investors with what they’ll need?
Your main objective when getting your house in order is to mitigate any uncertainty in your financials so that your investors have trust in your numbers or are able to reconcile.
Preparing Contracts
Choose the right legal partner
Working with a legal team that has excessive experience in M&As is imperative for a successful acquisition. Monique’s advice is to see your legal consultants as your partners throughout the process.
“We had brilliant external legal advisors, but it’s important to keep in mind that they won’t always know the ins and outs of your business. Make sure all parties are aligned on your commercial agreement and what you want to achieve”
Once you’ve chosen your legal team, start by reviewing which documentation you already have, what type of data you need to prepare, and gain insights from advisors on how to calculate certain formulas.
During the Basecamp-Xior transaction, Basecamp worked with legal experts, Paul Hastings, who has excessive experience in M&A. “Between them and the Aqcuirers’ legal team, fifty odd versions of the agreements made it back and forth, often at night and over weekends with everyone on standby to discuss the latest changes and issues.
Align with your investor’s team
Having a good relationship with your investor’s legal team is often underestimated. Working closely with the teams of both parties will create an environment where stakeholders can easily work together to find a resolution. Monique admits that there will be times that you reach a roadblock but oftentimes, it could be as simple as getting everyone in a room or on a call to resolve a matter.
When you are working on a deal of this magnitude, nothing else is a priority or as significant. Make time and find a resolution together.
Gearing up for an M&A?
With the help of our guide, you should have a few fundamental tools to prepare your team and maximize your chances of a successful M&A transaction.
Are you wondering about what to expect post-deal? Read our guide with Theresa König about Post-Merge Integration success.
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