M&A Strategy

In the first decade of the century, M&A was an essential part of successful strategies for profitable growth. Many companies succeeded in delivering superior shareholder returns using M&A as a weapon for competitive advantage. M&A strategy done right, especially with a repeatable model built upon a disciplined M&A capability, creates value.

Our M&A consultants work with companies to make mergers and acquisitions succeed and deliver superior returns by developing a repeatable model that is tied to the company’s strategy and customized to its experience. We help companies position themselves to take advantage of the global macro trends and capital abundance that are placing increasing pressure on them to grow.

Our analysis and experience indicate that M&A creates the most value when it is frequent and material over time. Those companies that have a repeatable model and institutional discipline to find, diligence and integrate companies over and over again are the companies that far and away outperform in the marketplace.

Our approach to mergers and acquisitions consulting and acquisition strategy is based on four ideas:

The evidence to use M&A to drive growth is compelling.
M&A should be an extension of a company’s growth strategy and standing pat is not an option.
Companies should 'plan for opportunity', long before any opportunity arises.
M&A programs should be built around frequent, continuous deal-making and initially focus on small acquisitions.

An acquirer’s expertise in finding, analyzing and executing the transaction, and then in integrating the two companies when the deal is done, determines the success of the typical deal. Frequent acquirers create a repeatable model for M&A, one that they return to again and again to launch and negotiate a successful deal.

The best acquirers understand the elements of this repeatable model and develop a variety of skills. We find that frequent acquirers:

Create an M&A plan that reinforces their strategy.
Develop a deal thesis based on that strategy for every transaction. The thesis spells out how the deal will add value both to the target and to the acquiring company.
Conduct thorough, data-based due diligence to test their deal thesis, including a hard-nosed look at the price of the business they are considering.
Plan carefully for merger integration. They determine what must be integrated and what can be kept separate, based on where they expect value to be created.
Mobilize to capture value, quickly nailing the short list of must-get-right actions and effectively executing the much longer list of broader integration tasks.

It is no secret that a majority of mergers and acquisitions (M&A) fail to deliver the promised synergies or expected value. For some companies, the problem lies in a flawed strategy for buying the target company. For others, the problems occur after the close as it becomes clear that insufficient rigor was paid to merger integration.

It does not have to be this way. Strategic assessments of companies, industry expertise, due diligence, merger integration, and operational improvements represent areas where knowledge and skills are readily available.

External Expertise

M&A transactions are typically done under tight deadlines. Few companies have the internal resources available—pool of experts that can carry out a transaction from target identification to synergy realization—to consistently excel at all phases of the M&A life cycle. Bringing in the right external expertise improves the quality of the strategic rationale for buying the company and due diligence, while also accelerating synergy realization and reducing risks of the integration. In summary, the right external experts increase the probability that your M&A transaction will be among the few success stories that create shareholder value.

Five Overarching Areas

In our experience, there are five overarching areas that all CEOs, CFOs, and strategists should address to ensure a successful M&A journey:

Internal capabilities: We usually begin with an assessment of internal capabilities to see if they are not only available but also up to the task of meeting the company’s larger M&A goals. Most companies have relatively small M&A or business development teams, which means the processes for assessing and integrating a target company are not readily available. Indeed, the less a company performs M&A the less likely the high-risk process of integration is “routinized” or “internalized.” Large acquisitions are especially susceptible to operational and business risks and require the most attention to performing due diligence, integrating the two companies, and capturing synergies; hence, assessing the availability and quality of internal resources is the first step in achieving these goals.

Strategic goals and alignment: Mergers and acquisitions present attractive opportunities but are also risky. So, before an acquisition, it’s important to evaluate a company’s strategic and financial goals—determining if they can be achieved faster or more easily via organic growth or an acquisition. To inform this decision, we establish a comprehensive baseline of the business by markets served and by line of business relative to market trends. If our evaluation supports an acquisition, we work with the client to assess which markets will meet the desired objectives and to identify acquisition targets.

We leverage experts from our global industry practices to provide an intelligent and thorough market analysis that leads to a clear understanding of industry dynamics, players, and trends. In each M&A transaction, we bring forward recognized experts who provide valuable insights to inform the “buy-no buy” recommendation. We have advised clients with their M&A strategies in numerous industries, including transportation, energy, oil and gas, consumer and retail, pharmaceuticals, manufacturing, and technology.

Selection criteria: Financial criterion alone is a “40,000 foot” view that is not sufficient for evaluating an acquisition. An evaluation of post-acquisition market share, complementary product and service portfolios, cost reduction and synergy opportunities, business unit turnaround needs, and cultural fit are critical elements that help zero in on the right market segments and target candidates. Most important, we always maintain a degree of flexibility from deal to deal, since criteria in one industry may not apply in another.

Target selection: The target selection process needs to be done rapidly and the criteria explicit and transparent. If the criteria are consistent with the strategic objectives established up front, the right candidates emerge easily and quickly. Analytical rigor is combined with industry insights. For most selection processes, industry knowledge is more valuable than any quantitative metric. An attractive ROI on paper can mean little if the target will require significant turnaround efforts that will stretch internal resources or pose a threat to the cultural identity of the combined organization.

Synergies and value creation: Accurately estimating the financial and strategic value that can be extracted from an acquisition is typically the most critical factor in justifying an investment. Analysts and private investors will evaluate the success of the acquisition based on the ability to capture synergies in the first two years after the close. This requirement for early improvements requires a much deeper level of analysis than a high level financial evaluation; it requires the development of strategic, as well as operational and functional improvement plans that can be implemented quickly to sustain the valuation of the merged entity.