Making Better M&A decisions

Mergers and acquisitions have pros and cons and need to be handled with great care. No two acquisitions are alike, and each requires a unique approach to planning and implementation.

When the closing passes, and the ink is dry, companies win or lose based on two critical factors – the price of the deal and the strength of the combined performance.

Smart buyers often arrive at the right price by having a multi-dimensional appreciation of the value drivers of the target company.  This multi-dimensional judgment involves more than just financial understanding. It includes having a strong grasp of the operational, cultural and growth elements.

The key to better M&A decisions rests in your innate operating ability and the integration of this operating perspective into your pricing approach. All too often, integration and operating perspective is disconnected from the determination of price.

Often, companies take either a market approach to price or silo off the price decision from smart operational people in their company. This makes little sense as acquisition economics usually hinge on the ability to grow at a faster rate, or to unlock a combined synergy.

Without this occurring, the deal won’t create much value and may end up being a huge waste of time. Buying a company means managing a larger company, which brings a much higher level of complexity.

The goal is to efficiently integrate and execute resources in an orderly manner on a larger scale. The processes and information needed to do this will also help you make better upfront pricing decisions.

Here are three ways to help you bring operating perspective into the front end of the M&A process:

1. Build a multi-disciplinary team – each department head at your company should look at the target and be able to contribute their views toward the pricing decision. Their views will provide more nuance and color to the issues affecting scalability and synergy. Many deals give off great synergy appeal. Actualizing the synergy is the hard part, so their involvement will increase your probability of success.
2. Get to know the people actually running the departments – Sell side M&A processes are geared to make everything seem rosy. All companies have some weaknesses. Strength in one part of an organization does not mean the company is universally strong in all areas. Have your operational people get to know the people and processes, at a granular operational level. This will give them a comprehensive view and the insight to opine on the degree of fit and ease of scalability.
3. Gauge the Organization’s Attitude toward Change – Some organizations are resistant to change. Others are more open to it. The acceptable of new ownership and a new direction is a key variable that determines both the quality and pace of execution. It is hard to get people to move in a direction they don’t want to go. Knowing this before you take the plunge is priceless.