How to make a success of any Merger or Acquisition

Nic was exposed to M&A early in his career as a fund analyst at Fidelity Investments and on the strategy team at Accenture in Europe. He then spent a decade investing in Global Equities on behalf of clients as the Chief Investment Officer of an Asset Management Business. 

This experience allowed Nic to analyse and track the progress of M&A deals across various markets and industries. Nic was also involved in other unlisted private deals in the agricultural arena. 

At LanciaConsult, he has worked with our clients across all facets of the M&A process and garnered valuable practical insights alongside our global team of practitioners.  

Hear from Nic in his own words:

Q: How do mergers and acquisitions create value for businesses?
A: The rationale behind these deals is wide-ranging, and we could write a book (many have already!) on the subject. But taking it back to first principles, value is created through 3 main avenues: 

• Buy vs build - Enabling a business to buy something that would take longer to build themselves.
• ‍Uniqueness - By adding something unique to the portfolio that couldn’t be replicated. 
• ‍Synergies – Value unlocked through the closer working relationship between previously separate businesses.
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Q: How to make mergers and acquisitions successful?
A: Unfortunately, the elements that create value for the business all come with risks.

• Buy vs build – The sellers are acutely aware of the cost of building and will demand this in the price.
• ‍Uniqueness - Companies command a premium for similar reasons.
• ‍Synergies – The complexity of integration and realisation of these is often underestimated; hence, they take longer to realise with smaller benefits. 

So how to avoid these pitfalls? Each deal is unique, but the overarching critical success factor is realism. Ask yourself if this kind of deal has been done before and if the purported benefits are likely to be realised. Factor in the speedbumps that are almost certain to be encountered. Consider the web of conflicts of interest inherent in every deal and understand whose opinion is truly independent and made with your interests at heart.  

This may sound overly negative, and that is why compliance officers don’t make particularly successful M&A practitioners (there’s always a risk big enough to scupper a deal); risk management and mitigation are still key. Blind positivity has destroyed Trillions of Dollars of capital over history. A considered approach using the adage ‘Take care of the downside, and the upside will take care of itself’ is preferred.

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‍Q: Why do most mergers and acquisitions fail?
A: Following on from the previous point, an overestimation of the benefits and an underestimation of extracting them is a key driver behind the low success rate. Usually, value is destroyed when a too high a price has been paid because the buying party has ignored the risks and extrapolated the benefits. Parties that can rationally assess both the pitfalls and benefits (and put a value and timeline to them) and then make a decision will be successful. This is easier said than done, especially when significant time and energy may have been expended on a deal and walking away seems like it's simply not an option. 

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‍Q: How do you measure the success of mergers and acquisitions?
A: Short answer: It depends. Even financial growth (unless the target remains completely independent) is quite hard to quantify in many cases. To continue on our theme of realism, it’s important to clearly define the expected benefits and KPI’s to measure these. And then review them post-acquisition. Some of these will never materialise, and other unexpected benefits will. A cold, hard and independent review is vital to gauge the success, learn from the mistakes and inform the future M&A strategy. Success may be defined in purely financial terms, whilst it may also simply be a preventative move (to halt a competitor) which provides no visible uplift. Alignment of these KPI’s to your own business is what’s most important.

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‍Q: Why is LanciaConsult the best place to support clients in their M&A? 
A: One of our key differentiators is the breadth of work we deliver, and the cross-sectoral experience gained through this. Too often, the various M&A players have very different incentives combined with limited experience of how their focus areas play out over time. Highlighting the pitfalls of a purported IT transformation programme is not beneficial to an investment banker’s commission cheque! It’s simply seen as a line item in an Excel model, combined with some mystical ‘synergies’. 

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Because LanciaConsult has experience across all aspects of the deal, most crucially the post-merger implementation aspect, we’ve seen (and experienced!) many battle scars. Clients often ask us to participate from initiation to completion, so any unrealistic expectations baked in upfront will only serve to come back and bite us. Just the kind of alignment of interests any savvy business operator will appreciate!

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If you want to understand more about how we can support any Mergers and Acquisitions, contact us today.