July 2022 — By Carolyn Mathis & John Mathis
Building a winning company with a combination of organic and acquired growth is akin to building a championship athletic team. It requires talent, strategy, innovation and top-notch execution. Over the years, nobody has done that with more consistent effectiveness than Nick Saban, head coach of the University of Alabama football team. If you study the approach that Saban has used to build the Crimson Tide into a perennial powerhouse, you will hear the mantra “Trust the Process”. We would propose that corporate leaders should follow suit – build a process and then trust that process consistently, throughout the course of an economic cycle.
We have seen corporate leaders take a variety of approaches when it comes to leveraging M&A to augment growth or drive strategic priorities. Some companies rely on large, transformative transactions to catapult to market leadership. Others embrace M&A sporadically, primarily during times of abundant capital and frenzied markets. The Fear of missing out can be a powerful motivator, especially when faced with the prospect of seeing a unique asset in the hands of a competitor. However, research shows that taking a measured, systematic approach to M&A delivers superior returns over time. We think of this approach as “programmatic M&A”. An effective programmatic M&A process involves being proactive, strategic and consistent throughout an economic cycle, systematically executing multiple small acquisitions each year to continue to invest in new technologies and new markets.
A recent report by McKinsey & Company explains, “Our more than two decades of research shows that through-cycle ‘programmatic M&A’ – making many relatively small transactions as part of deliberate and systematic M&A programs delivers far more total returns to shareholders on average than other approaches including organic growth and ‘big bang’ deals.”
We have identified several elements that are key to success when implementing a successful programmatic M&A strategy as outlined below.
While downturns can be a time to find bargains, and robust M&A markets can deliver a high volume of in-market targets, it is important to not just be reactive and opportunistic. Instead, it is imperative that a target fits into the company’s larger objectives. Acquisitions anchored in strategy and long-term value creation will be more likely to grow the business over time.
Do you want to expand the business into new geographies? Do you want to move into adjacent markets? Are there specific technology gaps that must be filled?
Generally, there are three reasons for acquiring:
All of these reasons speak to the number one motivator behind M&A: the fact that acquiring innovative solutions can often be faster and more cost-efficient than building them out internally. Being deliberate and proactively defining your strategic priorities enables more decisive action to capitalize on opportunities.
Capitalism is brutal, and disruption across the competitive landscape can be swift and often unforeseen. Communicating with those on the front lines can keep leadership attuned to the little changes occurring in the marketplace … before they manifest into big, disruptive changes in the future.
As strategic management scholar Rita McGrath reminds us, the key to seeing around corners is realizing that “snow melts from the edges.” The small changes around the edges of an organization can potentially signal the larger moves ahead.
When establishing M&A strategy, don’t forget to connect with those on the front lines. It may be the key to staying in touch with the zeitgeist of your market, prospects, and competitors.
Weighing the M&A themes and priorities for the organization is an important first step for refining a leadership perspective and setting specific objectives for your M&A strategy.
Once you have refined the strategy with input from stakeholders across the organization, map the competitive landscape to determine complementary businesses and start conversations early with realistic prospects. Let your strategic priorities drive the acquisition program.
Developing clarity around the specific goals you are trying to achieve is critical to defining success for your acquisition program.
Once you have identified goals and objectives, it is time to focus on process. Building a track record of consistent execution requires developing a system based on measurable results, accountability and repeatable processes. It is important to have a plan of attack for sourcing, screening, evaluating, and negotiating potential transactions, as well as a system for performing due diligence and integration planning.
Time kills all deals and private equity’s rise to prominence in the deal-making landscape has pressured strategic buyers to be efficient and decisive in their M&A decision-making and execution process. Having roles and responsibilities identified in advance of reviewing a live deal opportunity is critical. Orchestrating all the steps in the process requires precision and attention to detail.
At Harbor View Advisors our Catalyst practice delivers a new level of accountability, insight and execution to corporate development teams. Our team strengthens yours, providing an end-to-end solution for intensifying your strategy, pursuing your M&A objectives, and articulating your “M&A brand” with proactive outreach for successful outcomes.
About Harbor View Advisors
Harbor View Advisors provides M&A advisory, turnkey corporate development, and strategic consulting to innovative companies. Our unique approach combines the strategic thinking of a consulting firm with the execution expertise of an investment bank to provide clients with the full spectrum of guidance they need to achieve their goals.
DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.
