Why corporate strategy is essential to M&A transactions?

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The interest of growing companies in mergers & acquisitions continues to accelerate with an outstanding +30% in deal value during the first half of 2021 (Thomson Reuters, 2021). And it makes sense. Implemented well, growth by acquisition can be a highly fruitful process for any company.

However, it is no secret that some of the deals fail to deliver the promised synergies or expected value. Lack of strategic focus is usually identified as a key factor in failure. Let’s discover why building a corporate strategy beforehand is a great way to significantly improve your transaction success rate, both in the short and long term.

Lack of strategy leads to hazardous side effects on M&A projects 

While C-suites agree on the paramount importance to have an established corporate strategy prior to initiating major business projects, the on-the-ground realities demonstrate a certain complexity to apply such a best practice in the context of M&A transactions.

It turns out that many small and mid-cap companies approach deal-making much as an art than a science. Although this approach fosters creativity and innovation, it could lead to vague strategic rationales misaligned with the company’s corporate strategy. A loss of efficiency throughout the process and a deviation from the original objectives of the deal are then frequently observed outcomes.

In practice, weak strategic preparation might result in logical inconsistencies that lead to hazardous side effects often overlooked, such as:

  • Struggles in target identification: acquiring companies waste time and resources on a large scope of targets that are ultimately unsuccessful and end up juggling a set of unfocused deals.
  • Low appeal to targets companies: well-designed acquisitions should add value on both sides of the table. If the counterparty does not understand the deal-rational, the acquirer risks being seen as opportunistic by potential targets.
  • Sluggish collaboration: despite flawed strategies, deals are frequently signed. But the risks are not over. It happens, for example, that buyers without clear strategy fail to successfully integrate companies or suffer from weak synergies.

These non-exhaustive real-life cases are examples of challenges you could easily avoid by employing a more strategic and systematic-oriented approach.

Building a well-articulated corporate strategy to boost deals success

In our experience, acquirers in the most successful deals have well-articulated corporate strategies that incorporate takeover projects as an integral component to meet their specific objectives. This approach ensures on the one hand that the firm holds a long-term vision, and on the other that M&A is the right way to achieve its goals. A meaningful connection between the corporate strategy – i.e. the company’s overall direction – and the M&A strategy – i.e. a component of the strategic plan – is, therefore, an excellent indicator of the company’s readiness to undertake an M&A operation.

Once such a strategy is designed, the M&A process is usually quite straightforward and efficient. Naturally, the reasons that drove the firm to an M&A strategy enhance the decision-making process. Moreover, the analysis can be focused while benefiting from the holistic view, allowing the right deal to be made.

In summary, here are a suggested 5 worthwhile considerations for assessing whether or not a company is ready to initiate an M&A project:

  • Does the company have a well-defined corporate strategy elaborated through a clear business plan and granular objectives? This is essential to ensure that the focus is on the most important strategic issues.
  • Has the company identified the themes in which mergers and acquisitions can explicitly serve to achieve the main objectives of the business plan? Essential to ensure high relevance of the M&A transaction while limiting the scope of the search.
  • Has the company outlined the key attributes that the target companies need to have to achieve the business plan’s objectives? It provides a focus on consistent acquisition criteria to head in the right direction.
  • Has the company investigated the business fields on which it can bring extra added-value to the targets? A cornerstone element to boost value creation.
  • Has the company assessed its M&A capabilities and internal resources – such as integration or human resources skills – to execute such a deal? An overlooked point to ensure the feasibility of a transaction.

In a few words, whether you plan to perform an acquisition or a divestiture, an M&A transaction should always be integrated into an overall corporate strategy. By focusing on having a great alignment of acquisition strategies with corporate ones, the management team can make it more likely that their acquisitions will create value for their shareholders and stakeholders.

Working with an M&A partner is a great way to ensure that the transaction runs smoothly and guarantee strategic support from specialists who understand your business paradigms. 

Do you have questions about your strategy for an M&A transaction? Contact us.

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