Can you cope with convergence?
As our health care report references, businesses like Aetna and Cigna are using M&A to try to bolster their positions against potential newcomers to the industry, such as Walmart and the proposed health care consortium announced by Warren Buffet, Jamie Dimon and Jeff Bezos. Our manufacturing sector report shows companies such as Rockwell Automation using M&A to fill the gaps in increasingly service-led, tech-driven solutions rather than just products. Meanwhile, consolidation of industries and sectors are increasingly being led by global investment firms. For instance, JAB Holdings and 3G Capital are leading the way with recent deals in the consumer packaged goods space. Elsewhere in the same sub-industry, active deals by Nestlé, Conagra and other traditional industry players are keeping many companies on their toes.
These legacy companies need to rethink who their target market and competition are. While it would have been almost impossible to predict that an app like Uber, as opposed to a company like Tesla, would have been the largest threat to companies like Ford and GM, we are seeing companies being a lot more strategic and forward-looking in their approach to acquisitions.
Are revenue synergies a must-have or nice to have?
Traditional deals tend to focus on cost savings, but revenue synergies typically drive the real value (pdf), as cost savings generally allow the acquirer to cover the deal premium and tend to be one-time albeit recurring, whereas revenue synergies can continue to grow. For example, Microsoft’s investor presentation describing the benefits of the LinkedIn acquisition were almost entirely focused on revenue synergies.
Do you have the talent and tools to integrate with maximum speed and minimal error?
Long-term growth depends on successful integration that drives revenue growth. The days where the overall integration could take three to four years are gone — in part because the pace of M&A and the pace of change can increase. The timelines today tend to be 18–24 months or shorter, along with an expectation that 60%–70% of cost synergies will be captured in the first 12 months post-close. Transaction leaders need to start work on integration earlier, diligence needs to go deeper and buyers need clearly defined growth strategies.
How can you avoid a culture clash during a deal?
Failing to understand and consider a target’s culture, such as organizational values, management style, communication style, approach to innovation, and tolerance for risk taking, can lead to disruptive culture clashes during integration. CEOs must proactively take steps to address differences in culture, align messages to critical themes identified for each stakeholder group, strive to retain the best people, and put the right shared vision and incentives in place to ensure that all members of the new organization are excited to achieve success together.