How to survive multiple mergers and transitions

Since joining Element Financial Corporation in 2013, Jim Nikopoulos has been involved in nearly a dozen major acquisitions—which fitting for an attorney brought to the North American equipment financier for his M&A experience. On the heels of an 8.6 billion CAD acquisition, he shares his best practices for smooth transactions

Understand your business’s goals.

The most important thing when contemplating a merger or acquisition is that it be in step with your company’s overall direction and investment goals. At Element, we know exactly what areas we want to grow in and, therefore, what opportunities interest us. As a result, when we reach out to potential targets, we know the Element management team and board will support it. This might sound rudimentary, but a lot of companies don’t realize how important it is.

“You’re asking someone to sell their company to you; you have to build trust.”

Keep the deal team small.

I tend to run the process for most of our M&A, along with the CEO, president, CFO, and other members of senior management. Speed and strategic certainty are essential to making a deal run smoothly, and having a smaller team facilitates both. When necessary, we will include people with expertise in the type of business we’re acquiring. For instance, for the GE deal, we tapped the lead lawyer in our fleet division to get his perspective. In 2013, we bought GE’s US helicopter portfolio, and I had one of the lawyers in our aviation division weigh in on the deal. If there’s something we don’t fully understand, we will call in external counsel. To keep everything running smoothly, everyone’s roles need to be clearly defined. Each person needs to know why they’re there and what they’re expected to contribute.

Conduct extensive due diligence.

Do your homework; investigate the target thoroughly. If it’s a public company, that is easier. If it’s private, there are ways to get information, including people you can turn to who will have insights on its operations. When we acquired PHH Fleet, which was part of a public company, we spent several quarters pulling financial data and assessing the company. We knew what questions we wanted answers to. We discovered there were some shareholders who thought the company should split its two businesses (mortgages and fleet management). Knowing that helped us tailor and time our offer, and we were able to close the deal in 30-45 days.

Be proactive.

When we first began talking about the recent GE deal, our market cap was $4.5 billion, with $14 billion in assets. Adding another $7 billion worth of assets was a very big deal. To put GE at ease, we discussed how we would approach securing financing early in the process.

Be friendly.

We do not engage in hostile takeovers. We approach target companies in-person and start a dialogue. We want to understand their needs and expectations. You’re asking someone to sell their company to you; you have to build trust. Once a deal is negotiated, we stand behind all of the terms—pending some huge red herring—and focus on delivering the things we’ve promised.

Integrate quickly and efficiently.

When we acquire a company, we announce any personnel changes very quickly. The worst thing is to not have a plan and let people linger and worry. We then introduce all the key people to our systems, make sure they understand who does what and that they are committed to our operating strategy. Our integration plan for GE calls for specific targets and line responsibilities that we have carefully spelled out. We will meet regularly to measure our progress against the plan to make sure we’re on track.

Be transparent.

As a public company, it’s important to be clear about the objectives you hope to achieve from a merger or acquisition. For the GE acquisition, we’ve told the market that we expect to realize a 20 percent accretion to our annual earnings per share based on fully annualized synergies in the range of $90-95 million. We have put these goals out there so the public will be able to gauge our success. We will be monitoring these indices weekly and monthly and reporting to the board every quarter. There’s no option for us not to achieve them. That’s just how we operate.