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M&A: The Corporate Benefits of Leader Self-Assesment

September 2nd, 2021
M & A

M&A: The Corporate Benefits of Leader Self-Assesment

September 2nd, 2021
M & A

The M&A plan calls on business leaders to conduct a thorough self-assessment along with a comprehensive market assessment. Your evaluation will help you identify the gap in the company’s ambitions as well as the mergers and acquisitions opportunities to fill those gaps. The main sources examine a company’s competitive advantage and test their scalability to determine if they continue to increase the company’s advantage after the transaction. Market valuation, in turn, acts as a “sense test” for company leaders, ensuring that the company’s M&A strategy benefits from the latest and relevant trends, considers potential disruptions, and identifies potential competitors’ actions and reactions. Gives.

An M&A plan must also set out all the terms and conditions for the company to use M&A. These conditions, usually imposed by the CFO or the board’s investment committee, provide an important consideration: they define limits on the type or size of transactions and further limit the range of potential targets. When determining these conditions, business leaders need to consider the financial constraints that exist – for example, the rule that “transactions must be value-added in the first year” is unlikely to apply to growth-oriented transactions and therefore It can restrict M&A activities for no reason. Creating these framework conditions in the first place – with the explicit consent of the CFO and the Executive Board – can help strengthen investment commitments and align everyone with negotiable and non-negotiable terms.

Is M&A Assessment only for CEO’s?

Overall, self-assessment, market assessment, and review of constraints can make more sense for managers in understanding the context in which M&A is pursued and the markets in which they are best positioned. In fact, the result of the “why and where” discussions of corporate executives will be a set of M&A topics that reflect the company’s most valuable opportunities – those for which it has the skills and resources to achieve its strategic goals. .

Feeding a healthy dose of FOMO (or fear of losing) but with no clear priorities, the M&A team made small bets on a number of companies – even at some unexpected targets in nearby markets (such as animal welfare). . But the team did not have a specific plan to add value to these goals or integrate them into the current business structure. Result? In the end, the organization wasted its time and resources on largely unsuccessful transactions, and its managers inadvertently created a set of companies.

An M&A plan also encourages senior executives to develop a blueprint for how to use M&A to advance their corporate strategies. In particular, the M&A program should describe the overall business scenario and initial merger plans for each M&A issue.

The business must explain how the acquiring company intends to add value to the goal or objectives in a particular M&A subject – for example, the capital and operating costs required (beyond the purchase price) to merge the asset or assets; Scaling. It should also describe the operational changes and skills required to integrate new assets – such as creating a new business unit or a set of new business processes to manage an acquired digital platform.

Nowhere are the consequences of the current geopolitical tensions as evident as the growing rivalry between China and the United States. The two countries make up 76 of the world’s 100 most valuable companies. By leading political debates in the European Union, the three major global companies are seeking their own form of “strategic autonomy” to guide Sino-US relations. Technology in particular has become what Chinese President Xi Jinping has called “the main arena of global power competition.”

Dealing with business fluctuations

Such external pressure puts different internal pressures on business leaders. Depending on the circumstances, the managers of a company may need to assess the impact that political or media control of a company’s operations in one area has on its assets in other locations. Given the risks, they may need short-term and long-term market priorities. And they may have to deal with the global workforce with different perspectives on issues such as privacy and human rights.

Any discussion of such potential existential questions must start from the top. After consulting with top business leaders and legal, policy and risk experts at Fortune 500 companies in various industries, we suggest that business leaders take a five-pronged approach to geopolitical risk management.

The results of this survey show the prevalence of mergers and acquisitions in recent years and show expectations of rapid activity in the future. Forty-four percent of respondents think their companies will close more deals in the next five years than in the past five years – more than three times as many (13 percent) as those who say they do less.

When asked about the purpose of these M&A activities, respondents expect the reasons for future M&A activities to be the same as in previous years. They are more likely to say that their companies have had M&A for the past five years – and will continue to do so in the years to come – to expand their products or services and acquire new intellectual property or capabilities. For the past and the future, smaller ratios indicate that the goal was or would be to achieve economies of scale or vertical integration in their industries.

A major US healthcare company was committed to developing its strategy to expand its services through M&A. First, it combined existing and diverse service companies with a new brand and organized them into three different units: pharmacy care services, diverse health services, and data analysis and technology services. These three became his M&A topics. The buyer then closed more than 60 deals over a decade and spent more than $ 20 billion to complete his collection on these three issues. The organization knew where and how they wanted to play.

Of course, the business record must include an initial merger plan for the acquired asset (s) that is consistent with the transaction value-added thesis – for example, all joint services are controlled by the buyer and the target company’s product portfolio. Sold to current customers mutual buyer.

With the M&A scheme, executives can focus on the parts of the transaction that can generate the most value – especially when companies are doing multiple transactions on an M&A issue. In addition, they can prepare performance leaders, suppliers, and others to take action to merge one or more assets.

Article by:

Armin Vali

Adapted from an article by: Mckinsey.

https://www.mckinsey.com/business-functions/m-and-a/our-insights/post-close-excellence-in-large-deal-m-and-a

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