The London Stock Exchange closed in the red on Thursday following the Bank of England’s (BoE) announcement of interest rates increasing to 2.25%, with investors and companies alike keeping a sharp eye on this morning’s mini budget. The BoE confirmed in their announcement yesterday that Britain will officially enter recession, alongside surging inflation, which will further influence the attitudes of institutional investors and individuals correspondingly to avoid investing in risk-heavy sectors, such as tech and equities.

Business advisory, Trachet, highlights the seemingly increasing trend of companies turning towards M&As in the current climate to fuel growth as debt and equity capital become harder and more expensive to acquire. In light of this, Claire Trachet – leading M&A expert and CEO/Founder of Trachet – outlines the importance for investment-reliant companies – like tech startups – to consider dual-track planning, both preparing for an actionable fundraising plan, as well as a potential M&A. The dual-track plan helps companies strengthen their position and maintain bargaining power at a time of historically low valuations.

However, research commissioned by Harvard Business Review shows between 70 to 90% of M&As are unsuccessful, even during the best economic conditions. To this purpose, Claire Trachet explains why this number is so high, and has laid out the definitive guide for founders/CEOs to maximise the chances of getting their deal over the line in favourable conditions by better navigating the more nuanced parts of an M&A.

Enlist the help of an advisor as a rule of thumb

“Most deals fall through at the due diligence phase. Most commonly, this is because startups have not enlisted expert advice early enough to help them identify and resolve any issues prior to engaging. Conversely, experienced advisers and consultants can significantly increase value throughout this process, rather than have it slashed or thrown out entirely. Simply put, prepare early, surround your business with the right people to help you conduct ‘pre-due diligence’.”

Fit is important – enlist the help of a corporate matchmaker:

“Another key reason deals fall apart is due to a lack of alignment in terms of culture between the business and prospective acquirer. So, it’s of vital importance to get a good understanding of how the other party operates prior to getting deep into negotiations, otherwise, problems can occur down the line. Sharing the same values and vision really helps in fostering a smooth negotiation process – all it can take at times is a bad feeling for a deal to fall through. It is again invaluable to have someone who has been through these processes before and can source the ideal buyer for your company. Setting up an M&A is a highly energy intensive process for founders, sourcing the right buyer can be make or break for the future of the company ”

Being deal ready keeps you in control of the narrative

“This has never been more important than in the current deals market where the environment can dramatically change over the course of just a few weeks. I always stress to my clients the importance of being deal ready before heading into any potential transaction negotiations. If you have all of the necessary documents in order before the due diligence process starts, you can provide these instantly upon request and it keeps you in control. If there are delays, this could lead to the potential buyer delving deeper into other areas of the business to try and find the information themselves. Another really important thing here is to both sign and close the deal at the same time, as this prevents anything putting the deal in jeopardy in between those two things happening.”

Have your finances in order and extend the runway, finding a buyer might take time:

“Finally, startups should focus on extending the runway, so to speak – be diligent with the business’s working capital by optimising cash flow, review the contracts you have with your clients and minimise accounts receivable. Applying this mentality to the whole of the organisation is going to be key in the next year, whether you’re entering a fundraising round or considering an exit, ideally startups should be doing both. Applying this mentality also can show potential buyers that you know how to be savvy with capital, which is becoming increasingly important in today’s climate.

“Keeping the businesses’ financial statements in order is crucial; buyers will be looking at income statements, cash flow, statement of changes in equity and balance sheets in granular detail – mainly looking to highlight your liabilities, current or contingent. Numbers can paint a powerful picture, it is the seller’s responsibility to highlight past successes and future opportunities through these documents, this will help strengthen the company’s position throughout the information exchange as you showcase the company’s potential.”

Due diligence is the pitch, after the pitch

“A seller shouldn’t only be concerned with demonstrating their current success and business activities, but also what they can offer a buyer in the future. They usually want to understand the extent to which the seller will fit culturally and strategically within the larger organisation. By highlighting products, services or technology the buyer doesn’t have or might need, the due diligence process can be an opportunity to further the organisations value proposition.”