M&A stress test: Are you prepared for the next big deal?

The EY-Parthenon M&A Stress Test helps companies objectively analyze their readiness for large-scale transactions, helping them adapt more quickly. Without employing this test, many buyers can be left unprepared while facing massive deal decisions and tight deadlines, resulting in flawed strategies and unrealized deal value. By ignoring key deal readiness factors and not having a strategy, the risk of not realizing full deal value increases.

How implementing the EY-Parthenon M&A Stress Test helped a business prevent obstacles

Our work with a leading US manufacturer is a prime example of the benefits of analyzing readinesss. Facing slowing growth and a fragmented product portfolio, the company pursued acquisitions to regain momentum. However, without a strong organizational muscle for doing large deals in its recent history, it risked post-deal close chaos: misaligned business units, operational inefficiencies and lost synergies.

To avoid these pitfalls, the company turned to the EY-Parthenon team for our M&A Stress Test, a rigorous pre-deal assessment designed to ready the business prior to a major transaction. Just like preparing for any disruptive event, this process identified which parts of the company needed strengthening, which decisions had to be made, whether the organization was ready to acquire something of this scale and whether the deal was the right fit. To accomplish this, the first step was to ask the following critical questions:

• What aspects of the buyer’s business need to be fortified before embarking on a transaction?

The EY-Parthenon M&A Stress Test helps identify operational weaknesses, which can also uncover game-changing opportunities. In this case, the company unlocked rapid growth and expanded into new markets with unique products by leveraging a transaction to scale its product division. Armed with a clearer diligence approach, integration strategy and a sharpened focus on operational synergies, thanks to the EY-Parthenon M&A Stress Test, company leaders had better insights and data to help position the business for a high-impact acquisition aligned with its long-term goals.

• Is this a good deal type/business for the buyer to enhance outcomes?

By leveraging the structured EY-Parthenon M&A Stress Test — assessing readiness, diligence priorities, integration strategy and organizational agility — the company confirmed the acquisition was a strong strategic fit. The EY-Parthenon M&A Stress Test revealed that the proposed target’s product portfolio and geographical research aligned perfectly with the buyer’s growth strategy, presenting a unique opportunity to expand into new markets with minimal disruption. This helped confirm the acquisition was a good fit and also a way for the company to accelerate its market position and diversify its offerings effectively.

• What decisions need to be made before moving forward with the deal?

The EY-Parthenon M&A Stress Test helps clarify key decisions that can shape the success of a transaction. For this company, the test revealed that scaling its smaller product divisions was a promising growth opportunity. Further, it clarified which acquisitions would align best with the company’s strategic vision. Moreover, the test highlighted critical integration focus areas, such as workforce integration and product synergies, helping leaders make more informed decisions well before the real due diligence began.

Concentrating on the EY-Parthenon M&A Stress Test’s essential elements

To achieve effective execution and scalability in the M&A transaction, we worked with the business to focus on four areas that are critical in all M&A stress tests:

1. Early readiness assessment: This step includes evaluating the operational model’s maturity, governance frameworks and functional processes to identify critical areas needing attention before a transaction.
2. Critical diligence focus: This step includes identifying key focus areas for diligence, outlining essential priorities and recommendations to prepare for the transaction. The EY-Parthenon M&A Stress Test is solely about testing readiness. Understanding what to look for early is critical to make sure organizations are properly prepared for the acquisition.
3. Tailored integration strategies: This includes conducting scenario analyses for different transaction types to assess commercial fit and risks and developing customized integration strategies based on the deal value thesis.
4. Organizational agility evaluation: This evaluation helps to assess the buyer’s capacity to manage integration based on its structure and identify gaps that may require adjustments for efficient scaling.

By preparing tailored diligence and integration strategies, organizations can unlock value from targets, navigate M&A opportunities with agility and capture substantial value quickly. And most importantly, they can embark only on deals that will truly work for their organization.

The outcome: a refined strategy for success

When the deal closed, the EY-Parthenon M&A Stress Test equipped the organization to swiftly evaluate critical areas and make better, more informed decisions, enabling a seamless integration process. The outcome was a successful acquisition that boosted market presence, diversified product offerings and opened new revenue streams, highlighting the EY-Parthenon M&A Stress Test's value as a strategic decision-making tool. Specific outcomes included:

• Achieving an accelerated deal timeline from letter of intent to close, driven by strategic readiness.
• Unlocking 40% more synergies than any previous deal — far exceeding industry benchmarks.
• Realizing clear engagement and communication plans, spurring 98% workforce retention post-integration.

Enacting a focused integration strategy that enabled a successful Day 1 close with no impact on business continuity.

Thank you to Andrew Hagen for his contributions to this article.