Consumer products M&A matchmaking
Business model coherence
When two consumer products companies merge, how big of an impact do their respective business models have on the potential success of this new combined entity? Explore four common types of M&A transactions and the importance of finding a target or acquirer with a similar business model.
- Finding the right match
- The impact of M&A on business model coherence
- Coherence at every step of the M&A process
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Finding the right match
A recent Deloitte study, Business model innovation in consumer goods, found that consumer products (CP) companies that demonstrate exceptional financial performance tend to have a strong alignment with a single business model—rather than simultaneously pursuing multiple business models.
As CP companies acquire others or merge together, the business model of the combined business is likely to be a hybrid of the legacy firms—at least for an interim period following the transaction. As such, the process of mergers and acquisitions (M&A) matchmaking can lead to lower coherence and may be accompanied by brand dilution, customer service issues, and market share erosion.
The impact of M&A on business model coherence
Although there are several factors that, over time, can blur a company’s focus and cause it to deviate from its core business model, M&A transactions tend to have one of the most sudden and disruptive impacts on maintaining a coherent business model.
To help explain this disruptive impact, we classified consumer products M&A transactions into four types based on the level of congruence (similarity in business models) between the acquirer and target, as well as their relative size.
|Deal type||Dominant strategy||Speed to integration|
|Type 1. Acquisition of a target of comparable size and business model||Merge||Fast|
|Type 2. Acquisition of a smaller target with similar business model||Tuck in||Fast|
|Type 3. Acquisition of a smaller target with different business model||Bolt on||Slow|
|Type 4. Acquisition of a target of comparable size, but different business model||Transformation||Fast|
Type 1 and Type 2 transactions involve acquirers and targets with congruent business models. The result? A combined company whose overall business model coherence is relatively unaffected by the merger. In contrast, Type 3 and Type 4 transactions bring together companies with incongruent business models, which can lead to a sudden and dramatic reduction in coherence for the combined company.
We recognize that it’s possible to combine two companies with dissimilar business models and different levels of coherence into a highly coherent company. However, achieving high coherence requires deliberate strategies and actions to remediate coherence issues after the acquisition takes place. In our view, this ability to actively identify, pursue, maintain, and create coherence in M&A is one of the key differentiators of companies that are able to create more value through M&A.
M&A decisions can’t be guided by a single factor. Scale, synergy, competition, and price should all be considerations in any transaction. And many successful deal makers don’t limit their activity to targets with similar business models.
Coherence at every step of the M&A process
Business model re-alignment—subsequent to a significant M&A transaction—is a critical requirement for sustained and efficient value generation. And companies that don’t do that are often forced into it by the board of directors and activist shareholders.
Over the years, we’ve observed several CP companies spin off significant parts of their business due to aggressive campaigns by activist shareholders toward restoring alignment to a single business model. Acquirers can take specific actions at each stage of the M&A life cycle designed to help preserve and enhance coherence—thereby enabling conditions for greater value creation.
To learn more about the factors that can make or break a deal, download the full consumer products M&A matchmaking report.