How to Define M&A Strategy
An effective M&A strategy is essential to meeting growth targets, accessing new markets and increasing shareholder value. We take a look at some of the best ways in which companies can achieve success when they plan their M&A strategy.
Define your outcomes
Identifying what you actually want or need from an M&A deal is vital. Ask yourself whether you’re looking for an opportunity to access new markets, grow your existing business, reduce costs or increase profits. Defining these outcomes will enable you to measure the success of the eventual deal.
Focus on the target
Identifying a target which will help you achieve your outcomes is not a simple matter. Focus on the outcomes you’ve already defined to decide whether a merger with a complimentary organisation would be most beneficial or if you need to acquire a company to add value to your own. Potential candidates can be sought from your existing contacts or business networks but more often than not external experts can offer their expertise in identifying a suitable target.
Keep true to yourself
Once a target has been identified it is important to keep your ultimate vision in sight at all times, and not be side-tracked by the minutia of the transaction. Both your goals and those of your target companies should be acknowledged as early as possible to enable financial and managerial synergy without losing sight of what made you successful in the first place.
Plan ahead
Every detail of the process needs to be defined and addressed to prevent problems or even failures further down the line. Consider such issues as due diligence, the legals, finance, regulatory matters, technology and IT system compatibility, salaries and benefits, as well as sales and marketing strategies.
Judge the cost
The valuation of a company which you’re considering for an M&A deal will be subject to several variables; how much your budget will stretch, its financial health, its position in the market, how well it creates a ‘fit’ with your own organisation, and, perhaps most importantly, how much the owners will expect you to pay. Preparing a budget for M&A should take all these factors into account as well as analysing how you will pay for the deal. Will you take out a loan, or invite funding from a private equity firm?
Analyse the risks
It is estimated that up to half of all M&A deals fail, with mid-market companies bearing the brunt of this failure rate. Risks include failure to meet growth targets, being unable to synergise, and a fall in productivity for the newly-established company, all of which result in a reduction in the bottom line or, at worst, a complete collapse. It’s important, therefore, that you analyse the risks involved with a potential merger or acquisition before you take a step along the road.