9 Lessons in Successful Acquirers Managing a Portfolio

It's not enough to simply be an acquirer. As deal competition grows and new innovation moves existing technologies and leaders to irrelevance at an unprecedented rate, companies must become advantaged acquirers. These are the companies that focus less on news cycle headlines and more on the structural framework that underpins every M&A decision.

All companies can tap into the benefits of being an advantaged acquirer. But to be one, portfolios must begin to look distinctively different. Acquired companies and those deal targets in sight must be treated or pursued differently. From acquisition strategy through the M&A due diligence process to integration strategy, criteria and priorities for deal-making must change. According to Deloitte, these nine distinctives are present in the portfolios of the world’s most successful acquirers.

01. Competitively Positioned

Advantaged acquirers recognize the markets where they have some inherent advantage or can quickly create one. For these companies, the goal is not to win in every market or, by default, try to expand to every adjacent market for expansion’s sake. Their goal is to win in the market in which they have carved a strong position and defensible competency. They are the opposite of the company caught up in the exuberance of cheap cash and aggressive deal making.

02. Balance Innovation

An advantaged acquirer will embrace a M&A strategy that features a healthy balance of innovation targeting. A portfolio that values future innovation will sow seeds for growth across a variety of opportunities (short, mid, and long-term) and various levels of risk and reward. Deloitte refers to this as the Innovation Ambition Matrix and recognizes that leaders keep consistent balance between transformational, adjacent and core investments. While emerging technology and future industry winners will never be certain bets, targeting highly innovative opportunities will provide healthy portfolio diversification and upside return exposure.

03. Create Synergies

Companies need to be able to clearly define how target deals and acquired companies or tech will be additive to existing operations. They must be able to convey to stakeholders how these deals will create an environment where disproportionate value is introduced relative to the cost of the acquisition, or in relation to ongoing maintenance of a previous acquisition.

04. Maximize Intrinsic Value

Long-term value is had by increasing returns on existing capital, reinvesting new capital to generate new returns and releasing unproductive capital. These get to the basics of intrinsic value definition and development: the level of risk-adjusted cash flows the portfolio (or deal) offers. Companies must assess where value is being created or destroyed by considering metrics such as revenue growth and return on invested capital.

05. Address Market Value

Acquirers must be aware of how markets assign value to portfolio companies or targets. While intrinsic value may be exceptionally valued internally and drive M&A decision making, companies cannot be blind to external assessments. Divergent beliefs in value can limit companies’ flexibility in how they do deals or maintain investments. External parties can exert control in terms of liquidity and financing options – limiting an acquirer’s ability to take action as needed within a portfolio.

06. Find the Right Owner

Other parties may have complementary technology, partnership access or an adjacent holding that can unlock synergies in a company or technology that an existing owner cannot. Advantaged acquirers don’t hold on to assets just because they produce cash. If they recognize they’re under-exploiting an opportunity, they sell. They find an ideal owner, sell, and reinvest proceeds into even better assets for continued portfolio strengthening and value maximization.

07. Survive Scenarios

Advantaged acquirers have portfolios that can succeed even in uncertain futures. They target the right mix of deals and investment types and stress test performance to maximize return and mitigate risk. These companies take the time to consider possible industry dynamics shifts, evolving business models and customer tastes to see how, together, a portfolio will return. Because they do deals that are closely coupled to company strategy and ones where they possess a specific advantage to maximize value extraction, they may find further outperformance, even in challenging markets.

08. Build Optionality

Advantaged acquirers build optionality into portfolio choices – enabling multiple potential routes to value in the future. They create optionality by mapping strategic choices (“if/then”) depending on whether industry events happen. They define transaction pathways and are thoughtful about the past to find “trend triggers”. These help them build instincts around when critical trends are getting underway, allowing them to rapidly respond and adjust portfolios as needed.

09. Weigh Feasibility and Risk

Feasibility focuses on the ability of a company to pursue, build and then maintain their goal portfolio, e.g. – is it possible with the people, process, existing priorities and structures currently have in place? Risk focuses on potential unfavorable developments that come from the choices made. These can include competitive reactions and chasing new, unproven technology or integration risks. Advantaged acquirers consider levels of risk in totality, and have well-oiled internal processes, competent management and connected teams to accurately weigh risks and gauge the feasibility of managing existing deals – while integrating new ones and vetting potential ones without hurting operations.

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Standing Out from the Crowd: How the World's Most Successful Acquirers Manage a Portfolio.

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