Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent companies to join forces, identify and remove redundancies, agree on prices and strategy while maintaining employee productivity. It’s like putting together a complex puzzle, except that your right and left hands have never worked together before. A successful integration should take between three to six months, although there are many hurdles that could trip up the process.
The first strategic approach, which is closest to the company’s core competencies involves the search for “Highly Synergistic” acquisitions. An example of a highly synergistic acquisition target could be a competitor or a company that may or may not compete directly in the same geographic market but is in the same business as they provide similar products or services to similar end markets and customers. When acquiring these companies, there are immediate synergies in terms of added customers and market share, reduced back office, and operational and purchasing efficiencies.
The next approach is “Strategic,” where the buyer seeks targets where synergies are evident, but require some work to achieve. Examples would include a target that has similar products but sells to other end markets or a target that offers different products but sells to the same end markets. While the cost synergies between the two companies are less significant, the potential revenue synergies and growth opportunities may be very high.
The next approach falls further away from the buyer’s core competencies, which is to seek “Complementary” acquisitions. These types of acquisitions may have some minor overlap in products, markets or capabilities, but do not provide any real synergy value. The synergies tend to be indirect and may involve sharing engineering resources and know how or operational best practices.
The final approach is to seek out “Diversifying” transactions where the target company has no overlap whatsoever with the acquiring company. We sometimes meet companies that believe they should diversify their business through acquisition, but struggle to identify alternative industries of interest and related target companies. As you would expect, these types of acquisitions have the lowest probability of success, both in terms of finding and closing a transaction and in post-closing satisfaction.
The gold standard of M&A is a repeatable model. Companies that work with us and built their growth on both organic and M&A achieved higher growth than the average.
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