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How to Apply Market Intelligence to M&A Operations

Most M&A operations in the past 10 years have led to relatively poor results. Estimations shows that about a third of M&A deals are outstanding successes. However, a KPMG study and a Harvard Business Review article estimate failure rate for M&A operations to be between 70% and 90%. Study after study seem, indeed, to corroborate this number.

Since 2008, the world’s economy has faced a long period of turbulences, first with the subprime crisis, then with Europe Public States debt issues and finally through a cycle of growth for the BRICS countries significantly slower. 

Ten years after the crisis, some industries are still struggling with recovery and the world has had a severe lesson on uncertainty. But despite still experiencing the consequences of the 2008 recession, for the most part, good times are back in the market.

The inception of an economic growth cycle is usually considered a favorable moment, for the most resilient and competitive entreprises, to accelerate a positive trend with external growth strategies in the form of a Merger & Acquisition operations.

This article reviews the preparation process and highlights the main tips ACTISS M&A practice applies while preparing M&A operations with their clients.

Failing to Prepare is Preparing for Failure

As Lao Tseu said a thousand years ago: “Everybody can see the results of a strategy, but few are capable to understand the process that have led to that result”.

The prerequisite to efficiently apply business intelligence to merger and acquisition operations is to look at your market and define your company’s performances:

  • Assess the tendencies of your market. Some of those tendencies are rather evident, other will require you to look beyond your ecosystem and assess weak signals. This will help you estimate possible future market scenarios
  • Review the main visible strategies. Your goal is to understand somewhat the key drivers of your industry players’ core business. You want to learn as much as possible about their strategy and positioning. This will enable you to anticipate industry changes and competitor’s moves. 
  • Benchmark the competitive position. You should at this point have enough information for this third step. Select the criteria that are relevant to you. Deciding on those criteria all comes down to your aim and objectives. A good practice is to think about what metrics could be early indicators of bigger changes or outcomes.  Choosing against whom you benchmark is also crucial. Ultimately, your goal is what determines who to include. 

Benchmarking your position also implies that you have deep insight on your personal situation. 

Know your Business, Set your Goals

Assessing your personal situation can be done through a variety of tools. A very good starting point is the SWOT analysis. This analysis provides a photography of your business’ general direction, strengths and obviously areas in need of improvements. A well done SWOT not only gives insight on business and market aspects, it often reveals crucial “intangibles” such as reputation, corporate culture and identity that, if not taken into account, would most likely lead to a wrong M&A move. 

Again we insist on the importance of setting goals. M&A is, after all, only a tactical tool at the service of a larger strategic need. Usually, we identify three higher purposes for choosing the M&A route: 

  • Acquiring of new customers
  • Driving costs down (economy/synergy of scale)
  • Enlarging product range for existing customers

Use the Intelligence Gained to Determine Options

Every merger or acquisition should be part of a very well defined strategy and fit into the reference sector. This is especially important when route-to-market is complex and plays a driving role. Furthermore, if the operation puts you in the position of new entrant, the objective and positioning previously defined must be extremely clear and sound.

To our clients, we typically recommend to:

  1. Identify multiple potential targets : Focusing on multiple opportunities within the defined goal reduces uncertainty. Thus helping achieved said goals even in front of unexpected or unanticipated events.
  2. Consider financially sound targets : Unless you have a solid experience in business turnaround, the time and effort required to integrate a new business makes it harder, longer and usually more expensive than initially planned. No need to add more complexity to the M&A operation.
  3. Staff properly and put high priority on the operation: more than 50% of M&A flops are driven by non related business factors such as the intangibles previously mentioned. A good practice is to designate a Development Officer as well as a dedicated integration team to manage and support the operation, in particular managing the integration that comes after the deal. 

Some Common Issues and Mistakes to Avoid

Misfit Customer: Having two businesses with radically different customer profiles may put you in an untenable position if not in line with your strategy and goals. Always take into consideration whether your current customers would really buy the product or service from the company you wish to acquire. Would they see the value of it?

Overestimated cost savings: More often than not, the competitive advantage of target businesses lies in their side functions such as sales, logistics, technical services. You need to realistically evaluate the required time and residual cost the fully integrate those competitive advantages. Is your business model even capable of smoothly integrating with the target’s advantages?

Customer fall-out:  1+1 may sometimes makes less than 2. There will always be some loss of value along the chain. You should expect to lose some of your target’s customers and/or profitability, at least in the beginning. Have contingency plans to account for those losses and eventually turn the situation around.

Incompatible corporate culture:  Probably the most common issue and yet the less considered. Is your company culture similar to your target’s? The efforts necessary to merge two similar cultures are already significant. Those required to change and integrate a radically different corporate culture… It is worth neither the time, the risks nor the money!

2019-01-04T15:11:19+00:00
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