Starting With End In Mind To Select Better M&A Targets And Improve Outcomes

The business world as we know it, no longer exists.  Every industry is being redefined by new technologies that blur the lines of the physical, digital and biological worlds.  These shifts are accelerating change like never before, creating great opportunities … and risks. Business practices are also rapidly evolving, becoming automated, intelligent, agile, and ubiquitous. What TCS calls “Business 4.0.”

M&A has always been a part of every business strategy.  In today’s era of rapid transformation, mergers, acquisitions and divestitures have become the dominant play to capture new customers, compete in emerging markets, and jettison assets that no longer enable competitiveness.

Your M&A Strategy

From TCS’ experience, there are four dominant M&A strategies.  Most companies embrace one as its primary M&A strategy and are opportunistic in the others:

1. Optimizers focus on improving existing products, services and business practices to maximize customer satisfaction and profitability.

2. Transformers seek incremental technological innovation to actively capture new customers and markets.

3. Explorers are the mirror image of the Transformers. They invest in leading edge technologies to expand customer capture within existing markets.

4. Revolutionaries take the boldest steps. They seek ways to disrupt and cannibalize so they can take on new competitors and capture new markets and create new industries.

Successful M&A is a combination of good strategy and great execution.  TCS’ FITME framework can help companies evaluate options and create the M&A strategy that’s right for them.

Accelerating Deal Due Diligence

In today’s world of low-cost capital, competition for M&A opportunities can easily come from competitors willing to make decisions with limited data.  Accelerating deal due diligence is crucial.  To speed this process:

1. Build a trusted M&A advisory team with the right industry, operational and technology knowledge to be engaged at the earliest stages of M&A exploration. This team will likely be a combination of internal and trusted third-party experts.

2. Establish risk thresholds to address unknowns. Managing risk is a part of evaluating every M&A opportunity, especially when acquiring cutting-edge technologies or entering new markets. Companies waiting for concrete answers will likely find themselves out-flanked by more nimble competitors. Defining likely risks and rapidly testing “Go-No Go” tolerances will accelerate decisioning.

3. Give the CIO a starring role. Business and supporting systems are no longer separate considerations. IT cannot make an M&A deal, but certainly can break one.  When it comes to the potential system impact of an M&A opportunity, the best person to make that judgement is generally the CIO.  Engaged early, the CIO can quickly assess compatibility and identify pitfalls and deal breakers.

4. Formalize your Playbook. Every company should have an M&A playbook that scripts the activities for due diligence, M&A planning, financial modeling, execution and synergy management.  A good playbook also describes the roles, both internal and external, to execute these scripts. For Due Diligence, pre-defined assessment and analysis frameworks can greatly accelerate the process.

In business, time to market is everything.  Creating the M&A strategy that fits your company’s growth and risk profile will provide clarity as to where to capitalize on opportunities that enhance competitiveness.  Add to that your own Due Diligence accelerators to quickly evaluate and exploit those M&A opportunities that best advance your strategic ambitions and enhance business outcomes.