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Winning in M&A: Acquisition strategy during merger waves
M&A strategy series
Heightened deal activity in recent years can subsequently lead to missteps–potentially compromising those deals. The first piece in our Strategy Series on mergers and acquisitions (M&A) examines common buyer mistakes during merger waves and how to avoid them. To win in M&A, proactively identify and transact deals by being an advantaged acquirer.
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- Five characteristics of an advantaged acquirer
- Potential benefits of being an advantaged acquirer
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Transform your acquisition strategy to avoid these mistakes
2015’s record M&A volume indicates that we may be in the sixth “merger wave” of the last century. While time will tell if we have crested the wave, this type of heated pace can trigger buyer mistakes, including:
- An undefined growth strategy. Not having a clear strategy, can push a company into being a reactive buyer.
- Overpaying. As the deal volumes escalates, so does the risk of a costly asset premiums, often leading to lost value of the transaction.
- A lack of options. Amid continued market volatility, companies may turn to M&A activity in an effort to increase shareholder value simply because they believe they have no other choice.
Five characteristics of an advantaged acquirer
Advantaged acquirers tend to have a disciplined process that enables them to identify value-creating targets and avoid the likely underperformers. This gives them a competitive edge and demonstrates value that they can deliver to shareholders. The acquisition strategy of an advantaged acquirer includes the following:
- Self-assessment. A company’s executive team members should assess the organization’s strengths, weaknesses, and opportunities for growth, both in revenue and value.
- Identified priority pathways. Advantaged acquirers which have conducted a careful assessment know what their M&A priorities are. They include identifying priority pathways that address new products or solutions that will add value for customers.
- Competitor signaling. Reviewing a competitors’ strategic intent can provide insight about their M&A deals over the last several years. Their past behavior will often foreshadow which acquisition targets may be top priority.
- Strategic screening. Advantaged acquirers screen all deal opportunities as part of their acquisition strategy. These filters may include everything from size, geography, and customer segments, to technology and talent.
- Disciplined execution. Advantaged acquirers consider integration to be an essential element of target identification and prioritization. It can be difficult to analyze synergy potential without evaluating integration risks and determining if the right resources are available for an effective integration.
The potential benefits of being an advantaged acquirer:
- Develop a better pipeline of priority targets as part of the company’s M&A strategy
- Save resources by not focusing on inappropriate deals
- Raise diligence and integration issues before valuation and negotiation begin