M&A as a Growth Strategy: What You Need to Know Before You Buy or Sell Post-Covid

#1. Find a Trusted Expert

When you’re thinking about buying or selling, you’ll want a partner to help you in the process. Whether it’s one partner or a team across different professions such as legal, finance and investment banking, the most important quality to look for is experience.

Start by asking your industry friends who have been through M&A before. Chances are, they know whom to go to and whom to avoid. You can also hire an investment banker or a CPA to find a buyer or seller for you.

#2. Do Your Due Diligence

The most important consideration in an M&A is determining if the firm will be profitable for the buyer. To do this, you have to assess the financial performance of the staffing firm over a period of 3 to 5 years. The buyer is going to be looking at the balance sheet, income statement and more to determine debt structure, historical cash position, net worth, gross margins, current pricing, EBITDA, etc.

With Covid-19, this is an extra challenge because the last 18 months have been anything but typical. Buyers and sellers have to keep this in mind when determining the final price.

Other important questions to ask include:

• What does the current business look like internally?
• What does the customer mix look like?
• What is the growth potential for that vertical?
• Are there opportunities to reduce overhead or expenses?

#3. Ask Questions

When it comes to merging two disparate companies together, financial performance and what it looks like on paper can only tell you so much. An important part of the M&A process is asking questions to get an idea of what the company is really like. What’s the company culture like? Are they compatible? It’s one thing to merge cost structures together – it’s entirely different to do so with culture.

Other important questions should be around practical matters such as the ease of combining locations and teams, which might be further complicated by an uptick in remote and hybrid work. You’ll also want to know whether the business is sustainable or if the industry is cooling down.

#4. Understand the Purchase Structure

In simpler times, a seller might lay out the terms for you, and you would negotiate and make an offer based on that. Now, it’s often much more straightforward: “Make me an offer,” or, “Here is the purchase price; give us the pricing structure.”

This opens up some opportunities to be creative if you have the resources to do so. For example, if the seller is asking for a certain amount, you could offer a small amount of cash down with an earn out over the next few years. It’s an environment where you can be flexible when it comes to purchasing.

In summary, although the time may feel right to grow like crazy, not all deals are created equal. Extra patience and due diligence in light of the challenges of this time may be warranted. Staffing firms that do their homework in this way will be more successful when it comes to M&A.