Determining an M&A Partner and the Potential Pitfalls
There are several reasons why a company would merge with or acquire another company (improve efficiencies, lower costs, increase market share, acquire technologies, geographic expansion, defensive drivers, etc.), however they all have the common goal, to generate synergiesand increase shareholder value. Assuming you’ve decided that an acquisition better fits your strategic goalover an alliance or organic development, an M&A team needs to be put in place. The team should establish a set of criteria to ensure the transaction helpsachieve strategic business goals and complements the company’s own competencies. Developing an effective acquisition strategy is thekey to success.
(Table based on Grundy 16)
Once you have defined a few key targets, you need to evaluate the fit of the potential companies. It is important to have an in depth understandingof the target markets and competitive environment of the candidates. By using the “GE Grid” (Grundy 61), you can analyze which target companiesare the most attractive, have the strongest competitive positions, and their ability to generate long term economic profits and growth. This will help to identify if the target meets and enhances your defined strategic position and plans for development.
The due diligence process will follow, in which you create the bigger picture by linking a more refined competitive strength and weakness analysis of the target’s fit across various segments (market, product & service, marketing, operations, people, technology, IT systems, etc.)and against specific competitors. This analysis must be broad and in depth as management relieson this information for the creation of synergy values. Financial due diligence is done to uncover any hidden financial risks by assessing the state of current and historical financials, quality of assets, overview of accounting policies, etc. Special attention should be paid to the target’s culture...