Introduction:
Streamlining and assessing your pipeline management is non-negotiable if you are a serial acquirer or serious about leveraging M&A for growth or value creation.
The data you can capture from your pipeline is critical to extracting value from the deal. In addition, it provides an opportunity for the M&A team to learn and continue to hone its processes. With these benefits in mind, below we discuss pipeline metrics you should track in your M&A pipeline management software. Watch our recent webinar called 7+ M&A Pipeline Metrics You Should be Tracking to learn more and see data visualizations that can help your monitoring efforts.
What to Track and Why:
The Data: “What is happening?”
The data captured in the pipeline, and made readily available via automated reporting, allows for informed deal management, easily accessible up-to-the-minute target health metrics, and heightened focus on deal strategy.
- Overall pipeline value — Identify the potential revenue contribution attributed to targets in different deal stages and gain insight into valuable data such as: whether or not most of the pipeline value by revenue is derived from targets in the early prospect stage. Here pipeline metrics can enhance your understanding of whether targets are moving too slowly through the pipeline. Additional questions these metrics can answer are whether there are risks to any Corporate Development objectives, such as revenue growth via M&A, and if M&A activity is ultimately delivering against stated objectives. Here we should note it is important to remember revenue is not the only element that produces value; real value depends on your overarching deal strategy.
- Split of targets by value driver — Value drivers stem from a variety of sources, such as acquisition of talent, growth, and revenue. Tracking and analyzing targets by value driver empowers the Corporate Development team — or deal team — to understand the current composition of the pipeline by strategic focus. Moreover, this metric provides oversight of all potential deals and their respective focus, confirming your objectives are actually represented in the pipeline. This information is often in the hands of various team members, so leveraging M&A pipeline software creates and maintains alignment. Finally, the underlying strategy metrics can be easily adapted to your team’s needs.
- Target count per deal stage — Tracking target count per deal stage helps Corporate Development teams understand how productive origination and target evaluations are and, in turn, identify whether the company needs to increase its deal origination activities to meet Corporate Development objectives. Furthermore, this data highlights the project owners that are consistently doing a good job of pushing targets to the next stage of evaluation. Conversely, it empowers users to recognize red flags, such as most targets ultimately getting abandoned and leads one to potentially reevaluate their deal strategy.
- Targets by geography — Understanding the geographical composition of the pipeline also empowers Corporate Development teams and yields a stronger understanding of the pipeline as a whole. Geographical focus works into the development of your overarching target acquisition strategy. Valuable questions and points of reflection arise from this data, such as “is it time to expand in a certain locality?” or “does the geographic location match our current strategic focus?”
The Risks: “What do you need to worry about?”
Risks can be tracked in multiple ways, which is paramount to avoid losing sight of small issues which could be detrimental to the outcome of an acquisition; overlooking several issues can be catastrophic for years to come.
- What issues or risks are expected or have been identified? — Losing sight of even minor potential issues and risks can be detrimental to the outcome of an acquisition; overlooking severe ones can be catastrophic and lead to significant losses for years to come.
- Time it takes to move a target through the pipeline — This metric can be represented in many ways and greatly impacts other metrics. How long are targets sitting in certain stages and what does this mean for your objectives? Is this data an indicator you are focusing on the wrong prospects or that due diligence is inefficient and ultimately taking too long? The consequence of targets moving too slowly through the pipeline, especially the due diligence phase, is that working data risks becoming out of date, the pipeline becomes stagnant, and competitors can close in on targets.
- Progress against growth objectives — this really depends on your M&A strategy; is your objective to expand into new markets or to accelerate growth? Are you trying to keep ahead of competitors? In reality, there are often a mix of growth objectives. Consider what the objective means in terms of the time involved — for example, are you trying to be quick because it is a very fast moving market?
The Lessons: “How can you learn from ‘failures’?”
The world of M&A is one of agility and change; pair this fact with potential changing inorganic growth objectives and strategic goals, new targets, shifts in the market…all these variables mean M&A practitioners must be constantly reflecting, learning, and honing their craft and best practices. This is another area in which pipeline metrics can greatly assist and lend key support. If you don’t have these things tracked or visible, you might never learn specific and useful lessons for future initiatives.
- Reasons for target rejection — Why were your targets abandoned or put on hold? Poor deal sourcing or a poor opportunity? Is it just a poor fit in terms of financials or culture? Keep on top of these reasons for the next time you have a prospect and it is looking similar to other prospects that were abandoned and you will save valuable time. Another consideration: Are the targets not proceeding beyond due diligence? Finally, are market drivers out of the company’s control? This might cause a shift in strategy.
- What issues did we encounter and what risks came to pass? — This point is so important, we have to mention it again. Tracking, and reflecting on risks is essential to robust M&A practice. Losing sight of even minor potential issues and risks can be detrimental to the outcome of an acquisition.
Final Thoughts:
Pipeline management is a must if you are serious about leveraging M&A for value creation; however, many practitioners are focusing in the wrong place, or still doing too much of the heavy lifting when it comes to producing reports to monitor their targets throughout the M&A process. This manual pipeline management becomes taxing and creates additional work for team members.
Conversely, when M&A software — namely pipeline management software — is utilized, the process becomes efficient and proactive. If Corporate Development or C-Suite Executives ask pointed questions about targets, the information needs to be timely and readily available; with pipeline management software, it is. Moreover, the data captured in the pipeline provides an opportunity for the M&A team to learn and continue to hone its processes.
M&A pipeline software provides transformative deal visibility; the data is invaluable and breeds repeatability in the M&A process. As a result, pre-learning lessons and keeping them tracked and available for everyone involved ensures experiential learnings are not lost even if there are personnel changes. In the end, these pipeline metrics equate to powerful data from a single source of truth, allowing the best targets to move through the process with the greatest opportunity for success.
