Written by Robert Johnson, Partner
For many managers, acquisition is a route to future business growth. Although an acquisition should help achieve growth, the question you should also ask yourself is “Will the acquisition add long-term value to my business?”. In this blog, I’ll look at some of the key areas to create value beyond an acquisition.
Any acquisition must stay true to your overarching business strategy. It needs to be part of a clear 3-5 year strategic vision of where you want to take the business. As the deal process progresses and you gather information, owners and advisors should step back and assess whether the deal is the right one and if it will indeed create value long term.
Managers and founders might see this as an output from the due diligence phase of a deal – whilst that’s true in part, at every stage you should be questioning whether the deal fits with the overall business and acquisition strategy. If it doesn’t, you shouldn’t be afraid to walk away from a deal if it isn’t right and won’t create the long-term value you are looking for.
When we build a pipeline of acquisition opportunities for clients, we constantly review the criteria to determine if the overarching strategy fits with the targets we are considering.
Thorough due diligence also lies at the heart of value creation. Due diligence should go beyond the financial aspects of a business and include all key value drivers. The information found during due diligence can then be considered in relation to future value creation.
Historically, acquirers would have a 100-day plan for the initial period following the acquisition. However, this has evolved and become a much more dynamic process often involving key actions in advance of the closing of a deal. Our advice to buyers early in the transaction process is to think about creating a day zero (deal closing) plan to ensure that integration and value creation are always front of mind.
Integration planning and execution
Integration planning should be undertaken throughout the transaction process. Businesses should build strong connections between the deal team and the integration team at the start of the acquisition process and maintain that regular one-team approach.
Integration planning and execution should cover every area of the business, whether it’s people, sales, operations, finance or technology. Only then will you get a truly holistic view and maximise the chance of success.
If a potential acquisition can’t be integrated effectively, you may query whether the deal should go ahead. That said there are strategic exceptions to every ‘rule’ and it is always worth bearing in mind that your own ability to integrate may be the constraining factor – in these situations making an acquisition and leaving the business as a standalone unit in your group, until integration can be achieved, may make commercial sense.
There is no doubt, that the time and investment that companies make in integration will affect their ability to create value from a deal.
The impact on exit
At the risk of stating the obvious, it is key to consider how all aspects of any acquisition affect your exit plans.
It may seem counterintuitive to start the transaction with a focus on your ultimate exit. But understanding your personal ‘end game,’ the timing of that and your personal needs at the point you exit can help provide clarity on value creation during the deal.
Businesses are improving the value created through mergers and acquisitions, but there remains much more that can be achieved if you keep value creation as a focus throughout the deal process. This focus can never begin too early.
The most successful acquirers ensure that they have a defined M&A strategy and that this sits at the heart of their business strategy. Due diligence, integration planning and considering the impact on your exit from the business can help you to focus and improve value creation beyond an acquisition.