Strategy - "What do you want?"
Updated: Apr 30, 2020
This is not a blog about how to find a strategy - there are thousands of dead trees and billions of electrons out there about finding a strategy, mission statements, and how to decide where to go forward. And, there are thousands of consultants out there to help you on this journey. No, this blog is related to how your strategy (whatever it is) needs to align with your tactics and efforts on the MAD (Merger / Acquisition / Divestiture) program.
A good friend and mentor to me drummed into my brain the importance of keeping alignment of strategy at the forefront my Corporate Development work. As I considered certain transactions or worked on development the strategy, he would always say: "Tim, what do you want?". Obviously, this was not my own personal "wants" but advice for me to consider the outcome of the strategy and take action accordingly.
When it comes to MAD activity, some companies have M&A "as a strategy". Usually this is based on market share or geographic expansion, but without much understanding of how it comes together in the end. And this is why so many transactions fail to live up to financial expectations. But let's get to some specific examples:
Example #1 - High tech company on an early path to a sale to strategic buyer asked CorpDev Consulting for some advice /strategy on the path forward. I asked some really basic questions:
*What business restrictions / opportunities are you going to improve by selling to the Strategic? (Answer: We need more sales distribution with an integrated partner)
*What are the goals, objectives and intentions of the Founders at this time (i.e. exit at a high multiple versus growth of the platform)? (Answer: We are totally committed to the growth of the platform)
*How does this partner solve the issues raised in the two questions above?
After 30 minutes of conversation, it was obvious that the transaction, as proposed to be structured, clearly met none of the requirements in questions 1 and 2. The general impression of the Strategic was that it was "desperate" and "behind the times" which is why it was interested in the transaction. However, the Founders wanted to be part of a growing, winning team with equity upside as a return to their engaged participation going forward. Further, the business restriction to be addressed (Question 1) was not only questionably met, but be addressed much more effectively through a different set of Strategics (let alone Financial Investors).
Example #2 - We were engaged on a project with a division of a large industrial company that was looking at declining growth rates in the market putting downwards pressure on all industry valuations. The Division leadership team had identified a competitor with whom they had a contentious relationship who was struggling with the potential to ultimately fail. Their goal: swoop in with a hostile takeover of certain assets.
For those that understand how deals really work, you will be aware that "hostile" and "certain assets" don't go together. But the leadership team needed to go through the process of understanding how either of the two basic approaches (hostile vs. certain assets) would work in reality before they could truly assess the opportunity in front of them.
In both of these cases, the leadership teams became enamored with "doing something" without really sitting down and considering "what do they want, and how does it align with reality". Let me also say that neither of these management teams were inexperienced, nor were they outliers.
CorpDev Consulting has experience in all stages of a deal process, from target identification through integration and can help you see around these corners. We would be happy to talk with you about your strategy and how MAD activities can make it better. Or not. Because the first question we'll ask will be: "What do you want?'