Blockbuster M&A deals are great for making headlines; what’s not great for making headlines are the write-offs, divestitures, and bankruptcies that follow many failed transactions. Sluggish economic growth, low interest rates, cheap debt, record high equities markets and large cash sums on corporate balance sheets have led to a very “hot” M&A market. With the large amounts of money, time, and effort it takes to complete a deal, treating an acquisition like a one-off project is one of the fastest ways for an acquisition to fail. Most active and successful strategic acquirers have very mature and rigorous acquisition processes, including hiring the right talent, building a robust process, and treating corporate development like any other mission critical function such as finance, IT, or HR. Active acquirers also tend to make M&A a core competency and ingrain it into their Company’s culture. A few common components of a rigorous corporate development function include:
M&A Strategy & Alignment: CEOs often look to M&A as THE growth strategy, whereas it should be considered only one tool within the overall strategy. Starting with a well-defined corporate/business line strategy and breaking it into organic vs. inorganic growth is important for success and alignment.
M&A Roadmap: Defining a company’s market position, core competencies and product/business line maturity helps identify strengths and weaknesses. Creating a future state roadmap as well as a build vs. buy analysis for each growth initiative enables the corporate development team to focus and make quick investment decisions when evaluating potential opportunities.
Governance & Investment Criteria: One of the pitfalls of M&A is being strongly influenced by an investment banker or appeasing the empire builders within an organization. Developing investment criteria with a mix of qualitative and quantitative metrics allow for a balanced and consistent evaluation of potential acquisition targets. Generating predictable, repeatable results and ensuring acquisitions align with the company’s strengths and growth strategy is critical.
Process Management & Due Diligence: Hiring and building a team to manage the acquisition process is important for knowledge transfer and consistency. Mature acquirers are consistently active in the market sourcing and managing opportunities that span all stages of the deal lifecycle. Having the ability to identify opportunities, manage the deal process, value a company, negotiate core deal terms, and execute a methodical due diligence process is essential for success. Be deliberate to ensure a smooth transition between due diligence and integration planning and execution.
Post Close Integration & Performance Measurement: Once a deal is complete the real work begins. A company’s primary focus should be on value creation (those outlined in the investment thesis), value preservation (current business strategies), not just integration, in the first 18 – 24 months as they are crucial for the realization of synergies. Bringing two companies together can be a daunting task, aligning the right operational and technical expertise, management team, and reporting procedures will provide the right resources and transparency into post acquisition effectiveness.