7 tips for a successful MA

Much like getting married, merging businesses can lead to holy matrimony or pure hell. Here are some 7 tips for a successful M&A-marriage.

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After sluggish merger and acquisition activity from 2015 to 2017, last year saw things picking up. Randgold & Barrick; Zijin & Nevsun; Goldcorp & Newmont – M&A was back in vogue.

But do these M&A deliver value? Do shareholders benefit? Or are the real beneficiaries the bankers and the law firms raking in fat fees?

If you are a mining company is it time for you to consider joining forces with another miner?

Much like getting married, merging businesses can lead to holy matrimony or pure hell. Here are some 7 tips for a successful marriage.

Tip 1. Make Your Business Case

Mergers and acquisitions are expensive, time consuming, and loaded with potential problems if not done correctly. Make sure you clearly understand why you are doing this deal. What do you hope to achieve?

Tip 2. Get Your Facts Straight

Are you getting what you think you are? For example, if you’re after the other company’s business contacts and relationships, you’ll have to retain key people after the deal. If the attraction is economies of scale, then cost must be taken out of the system immediately. Determine where the fat is and how best to cut it.

Visualize the combined operation before the agreements are prepared. Often, these important issues are overlooked until after the deal is done and everyone is looking for ways to contain overhead and reduce expenses.

Tip 3. Do Your Due Diligence

Have you done your due diligence on your acquisition or merger target. If you are looking at buying a junior do you have a thorough understanding of its mineral resources, and what do they mean? Ensure that you have a good grasp of what is good, bad, or ugly in the “wild west” of exploration and developing projects.

Tip 4. Ensure Your Company Cultures Mesh

As important as the actual business combination is whether the respective cultures are compatible. If they clash, the result can often splinter the entity, and destroy one, if not both, businesses. Examine the cultural issues as carefully as if they were a balance sheet item. How difficult will it be to integrate the two companies?

Tip 5. Avoid Crucial Mistakes

Before negotiating and signing a letter of intent, seek legal and accounting advice. A seemingly “non-binding” letter of intent often includes binding provisions that can cause difficulties when negotiating the definitive agreement. When a letter of intent includes language such as “best efforts” and “good faith,” the parties are leaving it up to a judge or jury to interpret what that means.

Pay attention to confidentiality/non-disclosure provisions. These provisions can seem “boilerplate”, but sometimes each party may have obligations to identify or mark information that is disclosed, and if some disclosed information is inadvertently not marked as “confidential,” the other side may be able to use it freely.

Tip 6. Don’t Fall at The Final Hurdle

Make sure too, that post-closing issues, such as permit or license transfers, vehicle re-registrations,  and new employee contracts, do not get lost in the excitement of the deal closing.

What’s the key to a successful transaction? Avoid ever saying the words ‘us’ or ‘them’.  Talk about where the combined company will be going, ‘Together, we will penetrate this market.  Combined, we can now make X.  Spend the money up front to enable ‘in-person’ team meetings as much as you think is required. The relationships need to be really strong as the cultures meld. Much of the success depends on the management of the people

Tip 7. Have a Plan B in Case Your Marriage Turns to Divorce

If things go wrong, it is often harder for small companies to survive. Realize this and plan accordingly. An M&A transaction for a small company can easily become a ‘bet the company’ transaction. Be aware that a large percentage of M&A transactions do not work out as well as planned.

Although a bride and groom rarely anticipate a divorce, planning an exit strategy for your company, much like a prenuptial agreement, is advisable. If this is the successful business that you built from scratch, ensure its continued existence and success if the merger fails. It’s not unusual, to see carefully drawn mechanisms for unwinding a merger. Many mergers contemplate parallel operations for some period of time before the “eggs are scrambled” and the merger becomes concrete.

Want to hear more about what makes for a successful M&A in mining? Don’t miss Mines and Money London where we will be debating the future of M&A including leading industry figures such as:

 What’s your experience of M&A in mining been? What would your top tip be? Tell us in the comments section below.

Andrew Thake

Head of Content, Mines and Money