Here are five commandments to help you craft a winning M&A deal.
Mergers and acquisitions have never failed to create a buzz in business circles and financial markets. It is as thrilling as a whodunit story. What is the motive? Is it hostile or benign? Are there any points of intrigue between the players? These are some of the questions that are bubbling for an answer.
Fascinating as the story may be, there are inevitable realities that accompany acquisitions. On a conservative scale, it is estimated that 70 per cent of mergers do not achieve their revenue synergies.
The good news is that outperformers are a part of the story too. There are companies that have consistently increased value for their shareholders from acquisitions.
So what differentiates these winners?Is it just luck? Or is there a well-founded method to the madness?
C.R.A.F.T. — the 5-commandment mantra
Successful acquisitions rest on one key attribute — craftsmanship. It is the single factor that lends distinction to the finest products, services, engineering marvels and works of art.
Consistent success can be achieved by using the C.R.A.F.T. approach.
Collaborate – internally and externally, and with all relevant stakeholders
Risk – manage risks to draw up identification and mitigation plans
Assess – for strategic fit
Fit – for cultural compatibility
Track – to create outperforming results long after the deal is inked
Collaboration encompasses a wide canvas
Both internal and external collaboration are vital. Involving internal experts in diverse industries and functions give a granular analysis of the dynamics of the industry’s value chain, the key players and future disruptors. They also pinpoint the right opportunity segments that are strategically relevant and value adding for all stakeholders.
Working closely with the target company can throw valuable insights for immediate and long-term success. It helps in understanding their realities and expectations, and defining details for the way forward and opens the doors to pursue the best options together.
Manage risks for identification and mitigation plans
Identification of risks, both known and unknown, is very important. Risks span the gamut of business, people, financial, regulatory and cyber security areas. For an acquisition to be successful, it is vital to have detailed mitigation plans for each identified risk and challenge, and incorporate them during the deal closure and integration phases.
Acquiring organisations need to have strong and qualified teams (including external experts) and tools to conduct successful risk assessment — especially data analysis tools.
Business risks – Key questions to ask
• How much of its combined customers will the merged entity lose?
• How long will it take to bring two companies together?
• What are the supply chain risks, including unfair practices?
• What will be the impact of the change in business ownership on existing contracts?
People risks – Key questions to ask
Legal risks – Key questions to ask
Assess for strategic fit
What is the rationale or business objective for the acquisition? Is the acquisition being looked at for new capabilities, geographical expansion, or new technology?
These are important questions in assessing the strategic fit.
Every prospective target needs to be assessed to determine fitment against the defined M&A priorities. Only those that meet the acquisition objectives should be pursued. This helps in focusing on assets that strategically map into the acquiring company.
Fitment for cultural inclusion
Culture differences and conflicts in business approaches are major reasons why acquisitions and integrations fail. The best acquisition strategy can achieve
gains only if people are voluntarily and enthusiastically engaged.
Leaders on both sides need to walk the talk to support the changes triggered by acquisitions. Proactive communication needs to be personalised to individual stakeholder groups – they should resoundingly answer the basic concern: “What’s in it for me?”
Cultural differences between the two companies must be acknowledged and worked on. Project goals and priorities should be made crystal clear. The key is to create an inclusive environment where the newly added employees feel motivated to work, contribute and grow.
Tracking for outperformance is a continuous exercise
Successful signing of a deal is just the beginning. The actual value is created after the deal is inked, when detailed post merger integration frameworks are drawn up to realise the long-term benefits and synergies from the merger.
Well-defined short term and long-term integration goals can address cultural aspects. It is a good idea to keep the plans flexible for course correction as required.
Regular integration, governance and reviews help to continuously measure outcomes against defined business plans. Monitoring progress over a period of 12–24 months post deal closure ensures that the momentum of performance is maintained. Post acquisition, there are good chances that management could get distracted. That is why tracking is so important – and the effort must involve both entities to ensure that synergies are realised from the very minute the deal is inked – for data, budgets, processes, customer experiences and organisational performance.
Exemplars of acquisition build a winning portfolio through a sound strategy and a strong internal team. They meticulously craft deals with a thorough understanding of both its art and science. For them, acquisitions are not just about plugging revenues or shopping for companies. They fill strategic capability gaps and ensure the right industry perspectives are plugged in. And they continually improve on it to maximise value from each of their acquisitions.
About the Author:
Sanjay Puria is CFO at WNS