The holistic M&A process enables successful acquisition

Olli Kaukonen

An important part of any company’s strategy work is to consider growth paths and new opportunities. Shareholders and management should ask themselves, where and how the company wants to grow and how the growth strategy is implemented effectively and successfully in practice. Acquisitions often provide one great tool to implement a growth strategy, creating value for the company and its shareholders.

An initial impetus and a solid foundation for a successful acquisition are provided by a comprehensive analysis of how the acquisition supports different long-term strategic goals and how it creates shareholder value. This basic work facilitates the strategic selection of targets as well as in the due diligence reviews and negotiations during future acquisition processes. The acquisition must therefore be seen as a holistic and organized process that includes different types of steps from strategic communication to integration.

Common pitfalls and risks in acquisitions

Acquisitions include a wide range of risks, which are often realized due to insufficient brainstorming and planning, and inadequate processes. A few examples of these challenges are listed below:

The acquisition does not have a strong strategic logic

Companies can engage in too opportunistic an acquisition process if their own acquisition strategy is not thought out beforehand. Inadequate strategic logic often leads to low synergies and costly acquisitions.

Only standard due diligence of the target is performed

Before committing to an acquisition, the due diligence phase should be performed thoroughly. In addition to the standard legal, financial, and tax review it is also necessary to consider e.g., commercial perspective as well as organization and culture in order to ensure complex compatibility. Due diligence should be also always tailored and focused on pre-defined strategic core thesis and issues.

Insufficient assessment of synergies

The process should focus on the evaluation of sales and cost synergies, with the broad involvement of both companies’ organization and experts. Failure to assess the potential synergies properly often leads to the failure of the transaction itself.

Overpaying for the target

Competition of acquisition targets has increased, which has led to higher valuation levels. The so-called “winner’s curse” and the risk of overpaying have been found to be both real and substantial. Despite the sunk costs, sometimes it makes sense to willingly throw the towel in the ring.

Lack of clarity regarding the implementation of the acquisition

The reflection and planning of the integration implementation should start already at the beginning of the purchasing process. The actual work begins only after the completion of the acquisition, in which case it is measured whether the acquisition provides more or less value than the price paid for it. By avoiding previous pitfalls, this step will largely determine the success of the trade.

A comprehensive process is the key to happiness

A successful acquisition is much more than just completing a transaction. It is a comprehensive change, which should consider the wide-ranging effects on the operations of the acquiring and acquired company at both the strategic and operational levels, without forgetting the organizational culture and practices. The acquisition process should include extensive and precise background work, a comprehensive strategic rationale, and a plan which ensures the success of the transaction implementation and integration. These together ensure the successful integration of different businesses. The process can also be successful, even if no acquisition occurs. With the help of a comprehensive process, possible costly errors can be avoided as an unfavorable target can be identified already in the early stages.

During the acquisition process, the acquiring company should pay attention to fundamental issues and the analyses that support them – why the acquisition is a reasonable solution in general, how it creates value and how it can be justified to both the company and the shareholders. The studies should focus on strategic, financial, commercial, and operational choices – these are highlighted especially when growth is sought from new industries or geographical areas. Thus, the acquisition process can be compared to an important sports match, foundations for the performance are created with the company’s internal resources and supporting advisors, in addition to which a thorough homework on the opponent allows for the modification of one’s own game strategy to achieve the best result.

Spring Advisor’s approach is based on the model presented above, where our principle is to create a comprehensive and smooth process for customers, providing the best possible starting point for a successful acquisition. In addition, we can support our clients in M&A processes at various stages and roles, utilizing the strengths of our experienced team in M&A financial advice as well as strategy, due diligence, and integration consulting.

Olli Kaukonen
Spring Advisor