How to make mergers and acquisitions successful | M&A, simplified and jargon-free

Updated: Aug 24, 2019


Coming together is the beginning. Keeping together is progress. Working together is success. - Henry Ford
Coming together is the beginning. Keeping together is progress. Working together is success.

In today’s highly competitive world, the playing field has levelled. This has opened a new world of possibilities for the medium sized companies but has also allowed larger companies to become real competition. Larger companies have internally, aided by available resources, have tweaked their business models to allow them to be more competitive to SME clientele. The easiest, and in many cases the fastest, way to stay competitive and maintain the speed of growth amid competition is to collaborate. But collaboration sometimes lacks the flexibility the time commands. Enter M&A.


So we thought of putting these thoughts together in an instructional bible to help SMBs ease up and look at making the most of coming together and working at building something larger.

Why M&A?

Is this something I should be considering?


There is nothing more powerful than the coming together of like-minded minds working together on a common mission. This is the foundation on which all successful partnerships work. However, most organizations tend to only realize the importance of working together with their internal people and tend to forget the power of coming together with other businesses and look at long-term synergies.

  1. Simplify the understanding and help create a foundation

  2. Consider M&As as an important strategic move

  3. Demystify and present options for consideration

  4. Execute more well thought out M&As

Honestly though, is this a nut worth cracking for me?


Short answer: The whole is always greater than the sum of moving parts.


Long answer: Businesses, each in their unique way, develop strategies to be able to do more with less. This may make them unique and efficient in many ways in their use of talent and capital. Further, each unlocks value in its own ways and can boast of success stories at it. These success stories and their learning that are unique can be carried forward to the combined benefit of the merged enterprise.

What kind of benefits?

Is there something more than I am seeing?


Intra-functional leverages


From a function to function perspective, below is a simplified representation of how the coming together can benefit the collective unit.

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Inter-functional leverages


Apart from this, myriad other leverages are also possible by combining the key strengths in one driver with a driver of another.


Identifying these leverages and synergies can be the first step in setting the internal expectations for pursuing a planned transaction in pursuit of a great portfolio strategy.

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Interesting. Now, how do I do it?

Can it be less complex than I think it is?


Getting it right the first time around

M&A ‘on paper’ usually great value creation for all the people involved. Quick returns where organic growth options may be limited or the industry itself may be highly competitive. But the worrying truth of the matter is that over 80% of transactions fail to deliver shareholder return in the short term. A primary root cause analysis points towards a lack of sufficient planning, setting of wrong objectives for the transaction and spending the wrong (insufficient/ more than necessary) amount of time in making it work.

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A

Set up the right M&A strategy


The first step to setting up the right strategy is to look inward. Some questions that can help in the process can be:

  1. What does my business face as a key inhibitor of growth?

  2. What are the key challenges & key differentiators as an organization?

  3. What kind of a competitive environment exists?

  4. Who are my largest competitors and what are our points of parity?

  5. How are we staying relevant and what are my competitors doing to stay relevant?

Once you have been able to answer these questions, it may be easier to approach the next part of this document.


Pick a strategy that works

A simplified guide on how to pick the strategy to pursue is in the image below. The final decision needs to also factor in the availability of cash reserves, valuation expectations of both businesses and the requirement of growth capital for combined business pursuits.

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B


Define a simple comprehensive single sentence objective statement


A single sentence goal statement allows all stakeholders to be on the same page as to why the proposed route is being taken. This ensures that future stakeholders are also in the know and aligned.

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C

Identify your targets

Knowing what you want


Companies seldom spend enough time in setting up the objectives of the M&A. The objectives for an M&A should consider deep-dives on the post-transaction synergies expected and re-emphasize the opportunities for unlocking exponential value. This helps identify go/ no-go situations while profiling targets as well.