Developing a Rigorous (and Realistic) M&A Strategy | Transaction Advisors

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This session from Transaction Advisors M&A Conference at the University of Chicago explored and debated M&A strategy theories and provided a look at the most pragmatic frameworks that can be used to analyze and validate proposed acquisitions, including the basis for pursuing unwilling targets.

The average S&P 500 company spends 2.5% of market cap on acquisitions over a 10-15 year period.

A company’s M&A strategy should be tailored and unique to that company. While certain practices are uniform across high-performing acquirers, there isn’t a boilerplate M&A strategy every company should adopt and follow.

Instead, companies should focus on developing a repeatable acquisition process that gives them an edge over competitors.

Companies should do their homework while developing their investment thesis. The investment thesis should convey a contrarian perspective as to why it is unique. Further, companies should avoid predicating the investment thesis on a single target—again, companies should strive for a repeatable process across many acquisitions.

Before a company can agree on their strategy or investment thesis, the deal team must agree on the underlying assumptions of their industry and the market—this will drive the company’s strategy.

Staying “on strategy” is important when evaluating potential deals, but companies should always be prepared to pivot based on market changes, if necessary. Regardless of strategic fit, every asset has a price and the greater premium above and beyond that price a company pays, the less likely it is that that deal will be successful.

A company may feel pressured to accelerate or otherwise deviate from their strategy due to pressure from competitors. Often times, it is not enough to simply beat a competitor to an acquisition as many companies end up in a situation where they “win” but ultimately “lose” when they’re unable to successfully integrate the deal.

When pursuing an “off-strategy” deal, companies should be prepared for a much higher bar as far as educating management and the board on why the potential transaction can create value.

Integration is often cited as a leading reason for a deal’s failure. A well-developed integration plan is important for any acquirer, but is critical to those companies without a long history of acquisitions.

Identifying potential integration ‘red flags’ should begin during diligence and, if present, companies should not be afraid to walk away from a potential deal. In fact, deciding not to pursue a potential deal can be the best acquisition decision a company makes.

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