Recovery from the COVID-19 pandemic is likely to lead to a boom in A&D M&A, as companies look to acquisitions to propel growth. This growth can help fill the revenue gap, and offer better service to customers. Doing M&A right matters. There is a close correlation between approach to M&A and ultimate deal outcome. These three keys to M&A effectiveness increase the odds of a successful transaction and a smooth post-closing integration. Here’s what you need to know as you plan your post-pandemic recovery. Keep in mind that a skilled A&D investment bank should figure prominently in your plan.
Making M&A Central to Your Strategy
Incidental M&A is much less likely to be successful than that which is made central to a company’s growth strategy. This requires a major capital investment, but that investment pays off. Larger acquisitions offer larger rewards, though they also pose some risks: more extensive vetting, and a more challenging integration. These investments also require some shareholder oversight, which may slow down the process. But ultimately, they tend to be worth more. So consider how M&A figures into your larger strategy, rather than making a few acquisitions here and there.
Choose Companies With the Right Business Models
It’s insufficient to merely choose a company that is succeeding. You need to target those with complementary business models. For example, research shows that original equipment manufacturers that acquire service companies fare better than other businesses. Creating the desired synergies hinges on having the right combined approach and assets, so consider which companies can complement or expand your operations with minimal disruption.
Limit Acquisitions to Reduce Integration Issues
A Deloitte analysis found that, over the last decade, companies with two or so acquisitions per year outperformed those with a more aggressive acquisition strategy. Companies with 21-40 acquisitions had a much higher acquisition failure rate, suggesting that integration issues may figure prominently.
A&D companies must prepare for integration challenges. Some common themes include:
- Consider operation acquisitions as standalone companies to avoid increased overhead pools.
- Be mindful of valuation based on talent, especially in the event that the acquisition is likely to be unpopular with the target’s staff.
- Define specific integration objectives.
Post-merger integration can be challenging even for the most experienced acquirers. Outside expertise is critical for realizing the fulll value of an acquisition. Moreover, the right A& D investment bank can help generate a replicable process you may be able to use in subsequent mergers, steadily building a lucrative M&A strategy and integration model.