M&A can be rapidly implemented, and its benefits are quickly seen, whereas organic growth can often be slower, unproven, and requires significant time/costs. M&A is often centred upon strategic rationale by an acquirer based upon multiple factors, such as:
- Accessing new customers, geographies or market segments;
- Accessing new distribution channels;
- Accessing new products or services;
- [Accessing knowledge including human capital, technology and/or IP (intellectual property);
- Unlocking synergies from the combined scale strengthening market position and/or providing cross-selling opportunities;
- Preventative to stop a competitor from acquiring an asset or business
An example of some acquisition rationale can be seen below:
| Rationale | Objectives | Critical Success Factors |
| Financial | · Cost reduction and tighter financial control, an opportunity to dispose of underperforming businesses or departments
|
· Imposition of management
· Improved financial reporting requirements · Speed of change |
| Geographical | · Expand the core business into new geographical locations | · Clear understanding of deal rationale
· Similarities to the target company · Ability to reward appropriate behaviour |
| Symbiotic | · Integrate skills and products within a portfolio or distribution channel | · Careful planning
· New organisational structures · Culture management · Effective synergies |
| Absorption
Absorption (continued) |
· Merge two similar businesses and absorb the target into the current business whilst reviewing efficiencies, the value of the two businesses combined is larger than they are individually | · Financial efficiency objectives
· Understanding similarities and differences between the target and acquirer · Swift appointment of an integration team and implementation of an integration plan · Choice of a management · New organisational and reporting structure · Internal and external communication |
Risks
Pre-acquisition:
- A lack of due diligence – without a thorough due diligence process risks, liabilities and opportunities can be missed which can incur further costs in the future.
- Miscalculating valuation and structure – upward or downward can have a significant impact on the success of the transaction and the motivation/incentive for the sellers or management team.
Post-acquisition:
- Miscalculating synergies – miscalculating the impact or the speed at which they can be implemented may mean excess costs can be incurred or the business may be overvalued.
- Integration – both operationally and culturally, if a detailed integration plan isn’t swiftly implemented this can incur further costs and issues such as drifting away from the integration plan, not grasping issues quickly or implementing changes or decisions.
- Culture clashes – remain one of the biggest risks, starting with a failure to map the two organisational cultures and agree on how the new combined entity should operate.
- Leadership – that is unmotivated, disincentivised, or unable to grasp the big picture.
If you would like to learn more about how member firms of Pandea Global M&A can support your business, or if you are an advisory practice interested in joining the network, please contact Callum and Connor.
Callum Sellar
E: [email protected]
Connor Monaghan
E: [email protected]