Mergers and Acquisitions 2019 – M&A as a Core Capability

Mergers and Acquisitions 2019: M&A as a Core Capability – Companies focus on maturing M&A Capabilities

What are Mergers and Acquisitions?

 

Mergers and Acquisitions (M&A) is a strategic management term used to describe a company’s consolidation, buying, selling, or joining of firms in order to help an enterprise evolve and grow. In a merger, two companies combine their forces to create a new stronger organization, whereas in an acquisition, one firm is purchased by another who becomes the new owner. When the negotiation between two companies is amicable and both sides agree to a mutual benefit, the agreement is considered a merger. However, in cases that the deal is unfriendly and one company has no interest in being purchased, the agreement is classified as an acquisition.

 

As predicted, 2018 was another record year for global M&A activity with $3.35TR in deals as of December 2018. These aggressive trends are projected to continue through 2020. Global companies are re-examining their own internal core capabilities to ensure that these deals execute as planned and deliver value to their shareholders. Pre-Merger, Post-Merger and Divestiture activities, processes, skills and governance models are often outsourced to global investment banks or advisory firms. But most companies note that some portion of deals fail to generate value. To combat these failures, global companies are beginning to invest in developing their own in-house skills in-lieu of reducing their reliance on external firms. Applying lessons learned from Mergers and Acquisitions failures over the years will eliminate making the same mistakes and improve outcomes.

 

M&A as a core capability

 

The majority of organizations believe that merger and acquisition initiatives are discrete projects and techniques rather than internal core capabilities used to enhance and support their overall strategy. Only a few companies treat these deals as strategic advantages that offer them extra value and an edge which is difficult to be replicated by competitors. Therefore it is not surprising why most organizations focus on statistics and cases of failure instead of focusing on developing Mergers and Acquisitions capabilities to capture more market share and profits.

 

Companies are effective at M&A when they allocate time and resources as they do for critical strategic planning initiatives. Many times organizations neglect important capabilities such as targeted focus on business plans that have specific objectives and can add extra value to organizations. As a result, most of the organizations waste time and money on unrealistic or unsuccessful goals, and get involved in a lot of unfocused deals. If a company wants to strike successful deals, it needs to develop potential synergies around one or two M&A themes and focus on them. Companies’ priority should be the theme that is specific, fully detailed and contributes to the delivery of their strategies. Crucial Mergers and Acquisitions themes have a profound impact on companies that can be measured in market share, or production-operation goals and profits.

 

It is important for organizations to examine whether the strategic vision for a deal is valid and not focus solely on financial and operation issues. The connection between strategy and a potential deal usually gets lost during due diligence. That is why financial due diligence should be combined and supported by a long term strategic due diligence concerning the feasibility and effectiveness of the future model and eventual end state. Companies should examine the assets and capabilities that make them the best owners of each target company. This way, the results will be faster and greater, and the companies could realize improvements in branding, as well as more financial and industry insights and expertise. Continuous monitoring and updating of expectations and requirements is the key to success. Aiming to drive speed, efficiency, and complexity reduction, companies usually overlook the unique attributes and requirements of different transaction types and rely on key stakeholders to make up their minds.

 

Focus on Internal Mergers and Acquisitions capabilities

 

Watching the past failures in Mergers and Acquisitions initiatives, companies identified that their reliance on external investment or advisory firms is not yielding results. In fact, outsourcing processes and skills around M&A initiatives caused a lot of problems that hurt the operations of several companies. In 2019, there will be a trend of firms investing on improving their own in-house skills to harvest continuous benefits in the long run.

 

Organizations can use several tactics to develop significant internal capabilities at managing M&A deals. They may, for instance, use a blank sheet approach to start due diligence from scratch and examine all factors that could affect the future model, using their creativity and experiences instead of just anchoring the research in a financial diligence model. Furthermore, executives of companies could employ due diligence simulation workshops with the same intensity and focus, as in reality where the research would be centered on the benefits and the extra value created. These are only a few examples of how organizations can highlight the importance of setting high goals and developing skills to manage pre and post integration processes and enjoy enduring results. Due diligence estimates should be the lowest acceptable performance and monitoring of processes during all stages can guard effective results of a deal. Companies can use the examples of the past, avoid the mistakes they did, and based on the successful steps, build their own reusable integration process template for future reference.

 

M&A initiatives are complex and are not a panacea that can solve all problems. There is no one size fits all approach to all strategic goals of organizations. If firms are able to achieve their strategic goals internally, within desirable timeframe and improve their performance while growing, then they should avoid the risks of pre and post integration. On the other hand, organizations that have invested in managing the complexity and hidden dangers of such initiatives by developing the insights, skills and core capabilities that are essential to gain its full potential for growth, are able to reap significant benefits and competitive advantage.

Posted in 2019 Trends, Culture Change, mergers and acquisitions, Strategy.

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