Per our earlier article on A Merger & Acquisition Leader’s Playbook For Success, avoid the traps of poor strategic focus, poor cultural integration or poor delivery of synergies by leveraging the full playbook and its seven sub-playbooks: Strategic, commercial, operational, financial, governance, organizational, change management.
This article focuses on The Strategic Playbook and its components of the Investment Case, focus, plans and innovation.
Be clear on what you want out of an acquisition or merger, how it would fit with what you’ve already got, and what you’re willing to give up to get it. Then broaden your perspective to look at different possibilities before narrowing in on the few best candidates, and putting together a compelling investment case including clarity on the core focus of the combined entity.
What you want in an acquisition
Synergy happens when two or more people or businesses work together to create new value, capture existing value, or prevent or slow the destruction of value. That leads to some of the different types of mergers and acquisitions and the different reasons to do them:
- Merging organizations with complementary capabilities and strengths to create something that no one else can do.
- Adding innovation or technology capabilities.
- Gaining access to a new market with a new business model or new Internet protocol.
- Expanding product and service offerings.
- Shoring up a weakness to stop destroying value.
- Repositioning a company in a new category (with higher multiples).
- Leveraging costs across the platform.
- Creating critical mass for a platform company to enable future value creation.
- Scaling the platform where there are economies of scale, perhaps in an industry consolidation.
What you are willing to give up
You have to give up something to make any merger or acquisition work, whether it’s cash or just a dilution of your control. You’d never do this if you didn’t believe there would be a positive return on your investment (ROI) in an appropriate time frame.
Which merger and acquisition opportunities to pursue
Knowing what you want and what you’re willing to give up to get it points you in the right direction to consider all the alternatives, taking into account overall risks at a high level and how you might mitigate those risks.
With that in mind, first lay out the investment case following the steps in the fundamental investment case model:
- Pay or contribute fair value for what the company is currently worth.
- Grow top-line (organically and inorganically).
- Make operational improvements and operational engineering.
- Invest in top-line and bottom-line enablers.
- Improve cash flows and pay down debt.
- Realize value in increased earnings or by exiting or recapitalizing when this round of value creation is done.
Second, choose your focus. This focus choice guides plans and innovation.
There are four primary areas of core focus: design, produce, deliver or service. Most organizations do all four to one degree or another in addition to marketing and selling – which all must do. Pick one as your main strategic focus and primary differentiator, with other activities and your culture flowing into or from that.
Third, create plans. These flow directly from the investment case and focus choices and include:
- Strategy: The single overarching choice
- Strategic priorities, enablers, and capabilities: in line with the strategy
- Culture: The behaviors, relationships, attitudes, values, environment or the organization
Strategic planning is about generating and selecting options to close gaps between objectives and current realities. It is about the creation and allocation of resources to the right place, in the right way, at the right time, over time to overcome barriers and deliver what matters. Strategic planning is also deciding what you will and will not do.
Fourth, consider innovation. The choice to innovate and how you innovate are strategic choices.
Choose whether your innovation will drive new products, next version of existing products, or higher prices—most likely in design- or service-focused organizations or drive down your production or delivery costs.