The Stress Test Every Business Needs

As we discussed in Chapter, using objectivity prevents overpaying and allows you to plot more than one path to risk‐adjusted value creation by not relying solely on a specific inorganic path to growth. It's also important to have a strong stage‐gate process that is consistently applied. Investment bankers and others are incentivized to get deals done, so it's important to counterbalance that view with a risk‐ adjusted view of the synergies and other valuation assumptions.

Conduct thorough due diligence

Due diligence must thoroughly cover all the crucial areas, including the following:

Financial.

Tax.

Legal and environmental.

Commercial, including such functional areas as information technology (IT), cybersecurity, and manufacturing operations.

Cultural fit, or the similarities and differences between organizations, especially the potential points of conflict (the review must include a plan for onboarding, socialization, and acclimation).

In our experience, thorough due diligence, with a particular focus on the future, can help remove politics and personalities from the decision process by forcing everyone involved to view the deal through the same lens—namely, one of what the operating model will look like postclose, how long it will take to get there, and what the costs and benefits are. Especially in the dynamic world we live in, due diligence must focus more on the future potential of the target than on its history leading up to the acquisition.

Formulate integration strategy and implementation plans, and work to ensure they're aligned to deal strategy

Too often, executives underappreciate the importance of integration strategy, the difficulty of capturing synergies, and the deterioration of value that comes from moving too slowly. This is why increasingly we see corporate boards asking for the integration playbook or plan as part of the due diligence process, and why integrations are not a one‐size‐fits‐all effort. Rather, the best executives work with their integration leaders to align around a plan, communicate it to others, prioritize resourcing for the plan, and help troubleshoot throughout implementation.

Lessons learned