Issue link: https://nebusinessmedia.uberflip.com/i/1510339
HARTFORDBUSINESS.COM | OCTOBER 30, 2023 33 OPINION & COMMENTARY EXPERT'S CORNER M&A success: 4 ways companies can sidestep regulatory, emotional challenges By Paul Fenaroli O n paper, mergers and acquisi- tions look thrilling. Diversification. Expansion. Cost savings and larger margins — in less time with fewer dollars. The promise of M&A can be intoxicating. But here's a sobering thought: 70% to 90% of mergers fail, according to the Harvard Business Review. For enterprise companies, regulatory hurdles can knock down the pending merger. Reuters reports that the U.S. Justice Depart- ment and Federal Trade Commission have attempted to stop more than 20 mergers since January 2021. For small to midsize firms, lack of preparation and purpose may kill the deal. In theory, it's a common belief that integration will decide which acquisi- tions move forward. But in practice, people are behind the numbers and processes. Regardless of size, here are four ways to dramatically increase your chances at M&A success. Begin at the end Clarity is a great place to start. Why are you pursuing a merger? This answer should serve as the North Star because it will impact everything that follows in the process. While proper planning will be important, anticipation will be mission critical. To advance the deal, think about the company's building blocks in terms of resources and processes. Those two elements yield value and profit. Developing a clear understanding of these variables will allow you to promote and defend the deal — or arrive at better terms. How would the pending merger impact the marketplace? How would the acquisition improve your company's performance? Asking the tough, specific ques- tions internally about what the end result will look like will help you anticipate opportunities to address. In M&A deals, being strategic means beginning at the end because it will ensure that every step along the way is tied to the desired outcome. Eliminate emotion Your exit strategy should be mapped out during the prep stage. This scenario represents the bare minimum that you will accept in a negotiated agreement. Otherwise, you will walk. This simple tactic removes emotion from the deal. Typically, negotiations that drag on tend to motivate players to hang on to finalize the deal for the wrong reasons, which may not be a logical fit with your original plan. As part of a more logical approach, you should develop a list of specific commitments that you could offer to regulators, or the other party. These commitments should be specific, measurable, attainable and have a realistic time frame. Creating this list in advance will allow you to run the numbers and determine which items you can concede in the most cost-effective manner. Game theory is a normal part of negotiations, which is a dance that revolves around give and take. Make sure you understand the value of each move before you take it. Build trust Trust is a special kind of currency leveraged during M&A negotiations. So, spend it wisely. Open communications will go a long way toward building a rela- tionship with the other side. From the very beginning, you will need to provide prompt, purposeful and intelligent responses. Delaying a request could stir skepticism and trigger an unfavorable outcome. It's not uncommon for parties to walk away at the onset if they have a bad "feeling," which is often created from poor communications. Anticipating inquiries is also imperative. As part of your prepa- ration, you will need to envision the possible questions and pain points in advance, so you can quickly provide an advantageous solution. To continue building trust — it's a process — you will need timely finan- cial statements, including monthly, quarterly and annual statements, to show them that your financial house is in order. The worst thing that can happen is that they see something that surprises them. Establishing open communications, built on transparency and honesty, is invaluable. In part, that means timely responses and organized financials. Stack the deck Take it from someone who played in the NFL, the teams with the best players tend to win. In the M&A game, assemble a winning team of experts to increase your chances for success. A tax advisor and business consultant should be on the list. At least one consultant should be familiar with valuing companies in the target industry. You will also need internal stake- holders, such as your chief finance officer and controller, to be part of your team. These employees, along with the chief operating officer, will be responsible for telling and supporting the story. Collectively, your team will be accountable for building good faith and goodwill throughout the process. They will amplify the positive and address the challenging items directly to bolster the relationships that get the deal done. Paul Fenaroli is an associate attorney at Pastore. He is based out of the law firm's Stamford office. Paul Fenaroli have an environmental impact, rapid progress is being made on building batteries with fewer minerals and more easily recyclable elements. Fortunately, today's batteries already have a smaller lifetime carbon footprint than gasoline cars, even when accounting for emissions from manufacturing and charging on a mixed-source grid. Historically, our dependence on oil imports has forced us to compromise with immoral autocrats to secure fuel, causing market volatility that hurts Connecticut residents and busi- nesses at the gas pump. In order to protect national secu- rity and lower the cost of living, we need to continue to invest in energy sources that are domestically and renewably produced, and the tech- nologies that use them the most efficiently — such as EVs. As economists, we've been closely following the United Auto Workers (UAW) strike against the "big three" domestic automakers, and the role that EVs play in the American labor market. Some have claimed that EVs will cause job losses because they require less labor to manufacture — however, the latest research shows this isn't true. The number of worker hours needed to build an EV powertrain ranges from slightly greater than, to nearly double, those required to build a gas car powertrain. Automakers are making big investments in the domestic supply chain, and the UAW has recently seen major successes in ensuring representation for battery workers — together, ensuring thousands of safe, well-paid manufacturing jobs across the United States. Climate considerations Connecticut is not immune to the impacts of climate change. We've seen extreme flooding in Vermont and wildfires in Hawaii. Closer to home, the news is not any better. There have been long droughts, more frequent heat waves, and extreme coastal and inland storms. The flooding residents in New Britain endure with unsettling regu- larity is caused by storm runoff into drainage pipes that are 75-plus years old, overwhelmed by our rapidly deteriorating climate. Taking steps to reduce our carbon impact today is the economical choice — saving us from spiraling social and economic costs associated with mitigating the intensifying harms of climate change. The transportation sector produces the largest share of Connecticut's greenhouse gas emissions — but adopting the strongest possible stan- dards for zero-emission vehicles isn't just about doing our fair share to fight climate change. When it comes to regulatory policy, we need to listen to what the economic evidence tells us. The ACCII rule will make Connecticut a healthier, more efficient state, with better jobs, more resilience to oil price volatility, and cutting-edge parity with the most advanced markets across the country and the entire world. By finalizing and adopting the rule by the end of the year, we'll be one step closer to a brighter future in Connecticut. Gary Yohe is the Huffington Foun- dation Professor of Economics and Environmental Studies, Emeritus, at Wesleyan University. Roger Kuhns is an economic geologist who has taught at City College of New York and University of Wisconsin Field Station. Both are Connecticut residents.