by Tom Allen
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Smart companies constantly review and adjust their portfolio of businesses to thrive in today’s fast-moving world. Driving active, efficient, and transparent corporate development, particularly M&A, has become a core institutional competency. However, many acquirers are running their M&A process today the same way they did in 1999 – with fragmented processes, siloed apprenticeship culture, and individual productivity tools. To build the M&A engine needed in 2018 – Smart M&A – acquirers need to rethink their Culture, Processes, and enabling Technology.
Technology is Eating the World
Here are some sobering facts:
Since 2000, 52% of the Fortune 500 companies have disappeared.
1990 – Average tenure of S&P500, 20 years.
2012 – Average tenure of S&P500, 18 years.
2026 – Average tenure of S&P500, estimated 14 years.
At the current churn rate, about half of the S&P 500 firms will be replaced by 2026.
70% see portfolio transformation as the most prominent boardroom issue.
80% plan to use M&A to accelerate transformation in an increasingly competitive landscape. Source: EY
Change Does Happen
Just as with many areas of modern-day life being enhanced by technology – think of the transition from regular cell-phones to Smart Phones, CDs/DVDs to Digital Streaming and the advent of Smart Home Connectivity, etc. – technology is enhancing the M&A process and set to become the new normal.
For decades, many organizations have run their M&A process in the same way – by piecing together a number of non-dedicated tools – such as Excel spreadsheets, Word documents, PowerPoints and paper files and re-inventing the wheel for each deal. While this “Analogue” approach gets the job done it’s very 1999, far from efficient and not conducive to M&A becoming a core competency. However, hundreds of leading organizations – such as Philips, HP, Nokia, Verizon and Daimler – have seen the light are discovering the new way to approach M&A – this way of working is called Smart M&A.
Smart M&A is characterized by an improved way of working – via Culture, Processes and Technology.
M&A success begins with culture. Culture may be perceived as “the way we do things around here to succeed.” It can block an organization's M&A success or catalyze it.
Smart M&A considers the following cultural foundations as core to deal success:
End-To-End Accountability & Breaking the Silos – a boundary-less organization should be the de facto reality for M&A teams – yet it’s not. Smart M&A is about breaking down silos so as to bring clarity to deal objectives and placing emphasis on joint ownership of a deal across cross-functional teams.
Embracing Shared Processes and Best Practices – by implementing best practices an organization can create a core competency in M&A. Following a standardized process supported by trusted templates and backed up by an M&A playbook can bring much needed structure and discipline to the M&A process, prevents the wheel being re-invented each time a deal kicks-off, and ultimately, enables a deal team to focus on what is most important.
Clear Objectives and Expected Results – whatever the objective/driver of M&A, it is important that an organization (i) is clear on why M&A is being pursued and (ii) that it considers the desired results it is targeting (across the short, medium and long-term). Smart M&A considers (i) Progress Towards Strategic Goals (ii) Deal Specifics (iii) Performance Metrics (iv) Long Term Opportunities and (v) the Human Side of M&A as central to measuring deal success.
Fostering Transparency and Intellectual Honesty – transparency promotes good governance and helps a deal progress. Providing a deep level of transparency will not only make the life of deal teams easier, but it can also make a deal run more efficiently. If a deal is managed in a transparent manner, communication and decision making reasoning becomes well documented and can therefore be understood by anyone on the deal team.
Avoiding Deal Fever – Structured Decision Making – M&A should be influenced by objective business goals and not just around getting the deal done. When deal fever (or tunnel vision) takes over, negatives can easily be overlooked, and decisions made with bias – resulting in the wrong deal being pursued. Smart M&A is about being alive to the risks associated with deal fever and approaching acquisitions with care so as to create value, not destroy it.
Knowledge Transfer – the attainment of knowledge across an M&A project does not come easily. Think of the time it takes to evaluate a target in detail and to conduct a thorough due diligence process. By the time of deal close it is likely that hundreds (potentially thousands) of hours will have been spent by a deal team on accumulating knowledge so as to gain a detailed understanding of a target company. Knowledge is therefore value and should not be lost.
Processes are supported by culture – with strong cultural foundations in place a deal team can move towards improving their M&A processes.
M&A teams that take the time to implement and adhere to best practice processes can improve their deal-making capabilities on an on-going basis – therefore increasing the likelihood of M&A becoming a core competency. Of course, no deal is the same and it is impossible to foresee all eventualities that may arise across the deal life-cycle. However, having a number of reliable and standardized processes in place as part of an M&A Playbook (essentially a deal roadmap/game-plan) can drive project efficiencies, help a deal stay on course and ensure timely course correction or issue resolution when unexpected events arise.
The following processes are central to Smart M&A:
Strategy – a corporate development team should ensure a strong, ongoing connection between M&A and corporate strategy. Ultimately, linking the organization’s accumulated deal-making experience to strategic decisions will provide long-term value and maximize the chance of M&A success.
Target Selection & Evaluation – the process around target selection & evaluation should answer the same fundamental questions every time – such as (i) will the target add value to the organization (ii) does the target fill a product/service or geographical gap and (iii) does the target expand capabilities or create opportunities, etc.?
Business Case – developing a compelling business case is essential before people and costs are deployed to a costly due diligence process. A business case should help an organization make better informed decisions and ultimately, to avoid costly mistakes.
Due Diligence – due diligence should be carried out in an efficient and systematic way – it should address risks and provide an acquirer with the confidence to “walk away” if things don’t feel right.
Transaction: Valuation & Negotiations – when it comes to considering the valuation of a target and general negotiations around the SPA, it is advisable that an organization takes a standardized approach for every deal and negotiates a transaction with a strong sense of risk mitigation in mind.
Integration & Minimizing Value Erosion –Smart M&A is about ensuring seamless linkage of risks from due diligence to integration and planning the execution of post-merger integration so as to capture synergies in a timely manner.
Lessons Learned – any organization looking to turn M&A into a core competency must act upon lessons learned. Lessons learned promote the recurrence of desirable outcomes and minimize the recurrence of undesirable outcomes.
Dashboards –the advanced dashboard reporting functionality provided by a Smart M&A Platform enables a deal team to easily leverage voluminous amounts of deal data and expedite decision making across an organization.
Stage-gated Pipelines – the M&A deal lifecycle should be split into clear stages, mainly to increase control across a deal and to reduce risks by allowing for the introduction of defined-deal phases (Stage-gates).
Collaboration & Document Management – with the speed at which a deal team must work, managing documents in the secure, structured and easily accessible way provided by a Smart M&A Platform is essential.
Project Management – a Smart M&A platform provides an end-to-end solution to project managing deals and related corporate development projects – enabling a team to significantly reduce the heavy admin burden typically associated with M&A and drive efficiency across a deal.
Reporting – reporting through a Smart M&A platform enables an audience to easily understand the latest deal developments at varying degrees of detail, understand open issues/risks and discuss corrective actions and next steps.
Issue/Risk Management – with a Smart M&A Platform, risks can be managed proactively via importing a best practice playbook with a few clicks. To deal with issues quickly and effectively, a deal team can use the Issues Log – helping to ensure issues are managed in the right way, in real-time, and do not derail a deal.
Financial Tracking – financial tracking is central to the realization (or capturing) of synergies during the post-merger integration phase of a deal – a Smart M&A Platform provides the ideal working environment.
Automation / Automated Working – to increase efficiency, reduce costs and lessen the risk of key issues not being flagged, organizations are increasingly incorporating the A.I technology offered by a Smart M&A Platform into their M&A knowledge work.
For More on Using Technology in M&A Stay Tuned for Part 2: What Does a Smart M&A Platform Look Like?