5 Pillars of a Successful M&A Strategy

Successful mergers, acquisitions (M&A) but also divestments mostly serve to improve and thus enable the expansion of customer and market segments. In order for such transactions to strengthen a company and ultimately be considered successful, intensive preparations and the implementation of a structured M&A process are required. 

The process of an M&A transaction can basically be divided into three main phases: the M&A strategy, process and integration phase. Each of these phases is in turn divided into a number of measures that will determine the success of the M&A transaction. We identified 5 pillars that hold up a solid M&A strategy.

1. Linking M&A strategy and corporate strategy

The first pillar is the formal definition of the main goals that are to be achieved in the course of a M&A transaction or divestment. This includes the definition of a target profile or possible strategic partner and consideration of their size (sales, employees, etc.), their competencies (products, focus, management, etc.) as well as the attention to current market trends.

This phase relates to all preparatory measures of the M&A process. The starting point for all M&A considerations is the corporate strategy and the associated goals. Based on a company and market analysis, a future-oriented assessment of opportunities and risks or strengths and weaknesses can be carried out. An M&A strategy can then be formulated on the basis of the knowledge gained through these analyzes. It is important in this phase that the M&A Strategy aligns with the overall corporate strategy.

2. Identification of the value drivers and definition of criteria for evaluation

This important step involves establishing a catalog of criteria using special value drivers such as profitability, innovative strength, market, innovation and product strength, but also classic figures such as expenditures, liabilities, fixed costs, vertical integration, etc. This process will help determine the advantages a potential M&A has for your company and assess your acquisition target in terms of its ability to create growth. The goal here could be creating a pipeline of potential acquisition targets. This way you can make sure that your target company fits your business and that you can achieve the desired synergies.

3. Transparent decision-making processes

This is an important pillar during the M&A process as well as a vital part of a divestment strategy. In order to achieve transparency, it may take creating a process that is understandable for those involved (M&A playbook). This definition of the process includes the planned schedule, the existing and to be achieved milestones, as well as the involved and acting departments and key players. This not only facilitates internal management and control, but also creates a basis for optimized cooperation for the contractual and negotiating partners.

4. Involvement of top management

The implementation of the M&A strategy is dependent on good leadership that needs to be executed right. In addition to the business owner, leadership means alignment and commitment by the senior management team of both organizations to the strategy and objectives of the deal. Without top-down leadership, the challenges and barriers to successful planning and execution of an M&A transaction are huge. A structured process and the involvement of the respective business areas as well as external consultants and specialists facilitate the development of decision templates and the processing and clarification of any existing deal breakers in advance. [1]

5. Experienced M&A team or cooperation with external consultants and specialists

As part of an M&A transaction, the various parties involved (shareholders, lawyers, etc.) need to be coordinated in terms of process and timeline. This coordination effort is usually significantly underestimated and requires an experienced M&A team or the support of an experienced external M&A consultant. An external M&A advisor, for example, represents a valuable second communication channel and is thus able to clarify any misunderstandings that could come up, resolve hardened negotiation positions, take emotions out of the M&A process, accelerate the M&A process and sound out different negotiation positions in advance.

Mergers and acquisitions are an integral part of every global growth strategy. The central question is how mergers and acquisitions are implemented so that they create sustainable value. With the right M&A strategy, this becomes possible. Successful takeovers are about capturing the value of a target company and realizing the identified synergy goal as quickly as possible and not losing sight of this goal. The high complexity and risks of M&A transactions require careful preparation and implementation. 

Private equity firms such as our company FabExchange, have become a major engine of the M&A market. We have been advising decision-makers in the semiconductor and EMS sector in the area of mergers & acquisitions, private equity, divestiture, and company valuation for over three decades. A professional M&A advisor with many years of practical experience in M&A transactions is a strategic advantage. Regardless of whether you are approaching the company, evaluating the company, managing the M&A process, or negotiating a contract, reach out and partner up with us.

Contact: Dmitrius Garcia garcia@fabexchange.com

[1] Prouty, Jack (December 2013) Achieving successful acquisitions and integrations: focus on the numbers. Retrieved from: https://www.financierworldwide.com/achieving-successful-acquisitions-and-integrations-focus-on-the-numbers#.YDfn-uhKhPY

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