The Art and Science of Mergers & Acquisitions
Are mergers and acquisitions (M&As) an art or a science?
Richard Dibden speaks to Adam Fowler, CFO of Onecom, one of the UK’s largest independent business telecoms and cloud communications provider delivering fixed line, mobile, connectivity and cloud solutions. Onecom has recently undertaken a series of successful acquisitions with Adam at the helm. Richard discovers more about the skills needed during this process, the lessons learnt and uncovers useful advice for other FDs on the M&A road.
When Adam joined the business in 2016, Onecom was privately owned and whilst some M&A had been completed, this was relatively small – it had meant the company had grown to 350 staff with a c£70m turnover. Following the acquisition of Evolve Telecom in 2016, Onecom then secured private equity (PE) investment in 2019 via LDC, this saw the business move out of private ownership for the first time and was the kick start to the next really exciting chapter for Onecom.
The company’s first acquisition post PE investment was in August 2020 with Glamorgan Telecom, a mostly fixed-line provider based in Cardiff with a strong customer base in Wales. Over the next 18 months the company undertook five more acquisitions, four of these alone were in 2021. This has taken Onecom from £70M in 2016 to c£170m today
For Onecom, the deals have all been successful in contributing to its strategic goals: “Our strategic objectives were to have best of breed, wider customer reach, wider product portfolio and more talent in to the business” says Adam. “We did all of these things. And more than doubled the size of the business!”
Key responsibilities
As CFO what were Adam’s key responsibilities during the transaction process? Adam explains that the business made the decision post LDC-investment to employ a dedicated M&A director to support Onecom’s strategy: “This has been vital to ensure we identify the right opportunities and have dedicated, expert resource to work on M&As.”
For Adam, as the CFO this has meant he can be heavily involved – but equally keep overseeing the BAU side of his role. He has also taken it as an excellent opportunity to learn – something he stresses is a crucial approach to have when it comes to M&As. More specifically though, his role in M&A processes has included:
- Reviewing IMs / other material
- Meeting potential M&A targets
- Working with Due Diligence (DD) providers, heavily scrutinising the Financial Due Diligence (FDD)
- Being involved in the process at all stages
- Assessing strategic and cultural fit – an essential element
- Considering integration and synergy potential
- Using his experience as a CFO to test things in another organisation.
The FD’s challenges during acquisitions
As with any project, time is of the essence – and for Adam he found a key challenge was that of balancing time when it came to his day job vs. the transaction. He says: “Having a really strong team to run the ‘business as usual’ (BAU) is critical, enabling you to be available to commit to the M&A process and dedicate the time needed to it.”
It was also important to be able to see things from another perspective and be open minded to other methods and ways of doing things. Adam clarifies: “A different way isn’t the wrong way. M&A is a great opportunity to bring different approaches together – it can be a challenge not to naturally shut down that opportunity.”
The skills of an FD
What were the main skills Adam, as CFO, needed to demonstrate during the transactions? It goes without saying that as a CFO, you are there to use your financial skills to understand financial due diligence (FDD) and to consider risk. Adam says: “Nobody else will get down to that level of detail. The DD can get you so far, but translating that into your industry and business is something only you can do.”
There are other skills that are vital too he stresses: “As a CFO, along with the CEO, you have a unique view of all functions. How does this fit operationally? Is there a strategic fit? Is there a cultural fit?”
The role of an FD is to be inquisitive, to ask and critique and to assess risk – an FD needs to know the problem areas to go looking for, and really get into the balance sheet. Adam says the skill is knowing the right things to focus on: “You could DD forever, but sometimes you have to be prepared to concede some points, assess whether that really is vital – you sometimes have to employ ‘gut feel’.”
So, does Adam think M&A is indeed an art or science…? Well, he says: “The obvious answer is it’s both!” Adam clarifies: “The science, can follow a broad formula of standard questions, things you want to see. This is good practice, it gives both sides a structure and ensures you cover the basic principles. But there’s also an art – an art of judgement, of gut feel that you sometimes need to override the science aspect.”
Lessons learnt
You have to be open
Share news at the right time with the wider company. You might not always have a lot that you can share or that is appropriate, but it’s important to do it once you are able, and keep everyone feeling in the loop.
Actively bring teams / cultures together
This has been really difficult in times of COVID. It is especially difficult in earn-out structures where you have to balance leaving the business to run and succeed, vs making employees feel part of the extended Group.
Dedicate resource to integration
Don’t underestimate the additional workload this integration creates and be ready to implement or hire the necessary resources to make it a success.
What advice would you give to any FD to prepare them for their first transaction?
Get really good advisors (FDD and corporate advisors) and form strong relationship with them.
Research – be prepared to do a huge amount from accounts, articles, blogs and research universes such as Megabyte.
Get onsite to the business if you can.
Get planning integration ASAP – before you’ve completed a transaction.
Be open minded – it’s a chance to look at things from a different perspective.
Ask the basic questions as well as the complex!
Enjoy it – this is a great opportunity to learn.