This is not an article about how to find or refine a strategy - there are thousands of dead trees and billions of electrons already dedicated to that. No, this article is about how your corporate strategy (whatever it is) needs to align with your M&A strategy and efforts. Developing an actionable corporate strategy can be daunting and time-consuming, in and of itself. The same can be said for developing an actionable and profitable M&A strategy. But ensuring the two are aligned and stay in sync, a critical action in corporate development, can sometimes seem impossible.
A good friend and mentor to me drummed into my brain the importance of keeping alignment of strategy at the forefront of my Corporate Development work. As I considered certain transactions or worked on development of the strategy, he would always ask: "Tell me, what do you want?". Obviously, this was not my own personal "wants" but advice for me to actively consider the outcome of the strategy and take steps accordingly.
When it comes to M&A activity, many companies have "M&A as a strategy", usually focused on increasing market share or geographic expansion, but with little understanding nor plans for how it all comes together in the end. With this strategy, its all too easy to get enamored by the next deal and get caught up in making it happen. This is one reason so many transactions fail to live up to financial expectations or desired outcomes. To avoid these failures, business leaders should analyze each M&A transaction under the lens of the corporate strategy and answer the question "Is it getting what we want?". Here's a specific client example to further illustrate this point:
Anchoring reality for a division of a Fortune 500 industrial company.
The Client, a division of a large industrial company, asked CorpDev Consulting to help refine an opportunistic acquisition opportunity; a competitor was struggling and close to failure. The relationship with this competitor was contentious, to say the least, and Division Leadership wanted to approach the transaction like a hostile takeover but only of certain assets. Hmmm...
For those that understand how deals really work, you are already aware that "hostile" and "only certain assets" don't go together. It was either going to be one or the other. Either they acquire the entire company and deal with the aftermath, or engage in negotiations to purchase certain assets. To unravel the emotions related to this transaction, we started with the question "what do you want?".
At the end of the conversation, it was clear that the Division Leadership Team saw some desirable assets packaged in a morass of underperforming ones; the implication of the hostile takeover was ownership of a suite of assets that would need to either be re-sold or shuttered. And the assets of interest weren't that valuable. The hostile takeover was out because the opportunity did not actually align with the strategy.
So, Division Leadership was left with the option that they least wanted: approach the competitor in a friendly fashion and try to come to a deal. The story ends here, as the competitor also wanted nothing to do with the acquirer. Both parties agreed, however, to revisit the deal in a couple of quarters to see if the environment or sentiments had changed.
The point of the story is to not become enamored with the opportunity and/or excitement of the deal. When initial efforts are focused on pushing the transaction through, instead of taking the time to answer the questions "what do we want?" and "how does this deal align with our strategy?", mistakes with significant consequences can be made. In this case, proceeding on the deal would have come with significant risks and negative financial implications.
Aligning M&A activity to the corporate strategy is not always easy and sometimes you need to take a step back to get the correct perspective on a deal. CorpDev Consulting has experience in all stages of the deal process, from target identification through integration, and can help you see around corners and avoid the typical pitfalls. We would be happy to talk with you about your strategy and how M&A activities can make it better, or not. But be ready, because our first question will likely be "what do you want?"!