Making a merger or acquisition successful

As the economy shows signs of improving and companies having the ability to raise capital more easily, the pace of mergers and acquisitions (M&A) in Alberta is likely to pick up. Completing a successful acquisition is the hard part. Organizations require a good strategy that they stick with from beginning to end.

“If you don’t have a strategic vision in place of where you want to take your business, the odds of you successfully completing it are low,” says Scott Bolton, a Calgary-based Consulting Services partner at PricewaterhouseCoopers LLP. “Good strategy leads to good business results.”

While it’s hard to predict if there will be another blockbuster deal such as last year’s Suncor/Petro-Canada merger, many of the major oil and gas companies are divesting assets. That gives small- and medium-sized producers a lot to choose from at the moment.

But before going ahead with a deal, he says there are three things a company should do.

First, a company needs to have sufficient liquidity and the financing in place to make the acquisition. Second, it should have its integration plan well thought out in advance. Integrations rarely go well and in reality most integrations have some kind of cost component to them so they’re difficult.

And “thirdly, I think it really should have an understanding of its management structure,” Bolton says. “Its management structure has to be robust, post-merger and you need to plan that out pre-merger.”

There are also tax issues to consider before making an acquisition, according to Johnson Tai, a partner in the Tax Services practice in Calgary.

“Buyers should look at three or four years’ worth of returns of the target company,” he explains. “Buyers should also look at the assessment history and find out if the company’s been audited or reassessed.”

There are two main objectives of tax due diligence. The first is to identify tax exposures the buyer may inherit that may affect the purchase price. And the second is to identify what tax attributes it may inherit, such as tax losses and credits.

And there are also tax issues that relate mainly to Alberta. In a deal that is for assets rather than shares of a company, one of the issues is allocating the purchase price amongst all the resource tax pools as well as the tangible and intangible assets. “The other issue we have is a lot of buyers and sellers in Alberta are income trusts,” Tai explains. “There are unique tax issues that need to be considered.”

Once a merger or acquisition is finalized, there are also post-deal issues to contend with, such as a clash between two different company cultures.

A common mistake often made is having one position where two people fill it for a period of time. While that may avoid some confrontations for a period of time, it’s not cost-effective and ultimately leaders to longer-term problems down the road.

“You have to have an action plan to foster both culture and values,” Bolton explains, suggesting that having a mosaic of different cultures instead of a melting pot is ideal.

Also, the company that ends up dominating the culture tends to promote its own, which is another mistake, he says. If there’s a perception people are playing favourites, it will have a negative impact. People will accept when someone doesn’t get a position if the process to pick the management team is perceived as fair.

Successfully completing the objectives of a merger or acquisition is rare. It all comes down to having a strategy and then following through until it’s completed.

“Strategy is crucial but you also need to execute,” says Bolton. “It’s the execution of the deal that most companies have problems with.”