Mergers and acquisitions are some of the most complex business transactions that occur. Given the notoriously high failure rate, it’s understandable for business leaders to be skeptical of the value of making deals.
However, when companies apply the same focus, consistency and professionalism to M&A as they do to other integral parts of their business development strategies, they can build a capability that consistently creates value. With the right expertise, organizations can elevate M&A from a tactical necessity centered on risk management to a strategic capability delivering a competitive advantage.
We asked mergers and acquisitions expert Kevin Tahmoush to explain common misconceptions and challenges that business leaders face. According to Tahmoush, while most business leaders have a sufficient overall view of the mergers and acquisitions lifecycle, they tend to underestimate the importance of the upfront landscape development. Continue reading to better understand the M&A lifecycle and how hiring a mergers and acquisitions expert, like Kevin, can increase your chances of success.
Q | Tell us about your background. What makes you a mergers and acquisitions expert?
A | I have been active in M&A and related functions for 20 years. I have been responsible for leading all aspects of deals for businesses at three different global organizations (e.g., Johnson & Johnson, PerkinElmer and Philips) managing and executing M&A efforts as a strategic buyer. In addition, having been responsible for business strategy over the last 8 years, I can also provide guidance on how to effectively embed inorganic growth requirements in strategic planning efforts and ensure teams are efficiently using resources.
Q | Walk us through the high-level process of the M&A lifecycle. What are the key stages to understand?
A | Although every business transaction involves a slightly different process depending on the business structure, particular company policies and management approval processes, the typical M&A lifecycle includes the following components:
- Landscape Development: Proactive assessment of the market landscape in areas where your business competes and in some cases, in industries adjacent to your direct competitive space.
- Business Case Development and Valuation: Working with the M&A team and at times external financial advisors and investment bankers, the acquiring company develops a detailed strategic business case and valuation model. The level of detail here is aligned with the amount of information the seller is willing to provide in advance of an initial letter of intent (LOI).
- Synergy Assessment: A high-level view of the strategic fit and projected financial performance of the acquisition opportunity by an acquiring company.
- Due Diligence: Assuming agreement on the LOI, the acquiring company moves forward with detailed due diligence across all company functions. This could be an exclusive assessment or involve a small number of other bidders.
- Final Negotiations and Signing: Following detailed diligence and the internal buyer approval process, a final bid is made and negotiated for the company. This is followed by the legal signing. Complete “closing” of the acquisition may occur weeks or even months later, depending upon the government approval process.
- Integration: Once the deal is “closed,” integration formally begins. But given that integration is critical to acquisition success, the integration plan should be developed throughout the M&A process and be a key focus for the buyer.
Q | What are the biggest M&A-relevant challenges that you see business leaders facing?
A | Risk. By far, understanding and managing risk is the biggest challenge for companies looking to play the mergers and acquisitions game. Performance after a merger or acquisition is a huge challenge for all businesses. Identifying and measuring the business and financial risk of deals is an art form. Even business leaders who have built highly successful startups may not have the skills needed to properly predict a successful merger. Ultimately, business leaders must rely on their staff to tell them how well a business will fit into the current strategy and trust that the diligence process has picked up all of the key deal drivers.
Q | At what stage of the M&A lifecycle are expert consultants like yourself typically brought in for help with challenges?
A | The use of consultants and the management of M&A activity varies greatly from company to company. Large organizations typically request support for very specific tasks. This could include due diligence in a particular geographic location or market and product analysis for products that are new to the acquiring company, etc.
Small, mid-sized or large companies may need help across any or all aspects of mergers and acquisitions. If they have traditionally grown organically, they could request consulting support to define a new function or support to evaluate the viability of a potential project. For such companies, hiring an M&A consultant is a matter of gaining the right expertise and ensuring they have an experienced voice in the room as they assess and execute on any part of the M&A lifecycle. This expertise can also be useful during a divestiture.
Q | What metrics are used to measure success in the types of projects that you work on? What has been the impact/ROI of your work?
A | Developing short-term metrics is difficult. Of course, the action of completing a sale or acquisition is a key milestone. But once completed, these deals are measured against expectations — financial and otherwise — for years to come.
As a consultant in the space, the measurement is often about completing the project and meeting specific targets for the company. I’m also effective when it comes to delivering a new process, providing the market details and being an active and valuable resource during discussions.
Q | How do you approach your client’s needs differently than say, a big consulting firm like a Bain or McKinsey?
A | The larger consulting firms can certainly provide a lot of value. They understand best practices, the theories behind M&A and often have access to global resources that can help, especially when dealing with very large projects.
What a small company like mine or an independent expert provides is direct experience and input during the day-to-day strategic planning and M&A project completion. I focus less on theories about how clients could do things and offer more assistance with completing specific actions. I become deeply engaged as an integral part of your internal team. I can also be much more flexible with fee structure, time commitment and overall approach in order to match the ideal goals of my clients.
Q | What do you think are common misconceptions about the M&A lifecycle from business leaders?
A | It’s a challenge for businesses to put the time and resources into fully understanding the M&A options, competitive landscape and prioritization of targets. But time spent completing and continually updating during the early research phase can significantly improve the effectiveness and efficiency of the M&A team. More effectively monitoring competitors and adjacent companies by identifying them in advance during the landscape assessment will also allow potential projects to be easily ruled out if they do not match the firm’s priorities.
Q | How do you think that the M&A lifecycle may change with new technologies or business practices in the next 5 years? 10 years?
A | I don’t expect the M&A lifecycle to change significantly over the next 5 or 10 years, however, new technologies may improve business assessment and deal analysis. As more data points become available from the success and failure of these deals, the ability to track and test business scenarios in a potential M&A process should improve significantly. This increased analysis will help businesses more accurately build out projections and ultimately give the buyer more comfort in the purchase price as well as integration plans.
Analytics confirm that 2015 was a record-breaking year for M&A with bank revenue stemming from global deals hitting $24 billion and deal volume exceeding $5 trillion.
Still, business leaders do well to remember that M&A is complex and it isn’t the answer for every strategic business development goal. Companies that can manage the complexity and, with the help of a consultant, build the capabilities and insights required to realize its full potential, a serious competitive advantage awaits.
To get a good handle on your business’s potential, contact a mergers and acquisitions expert like Kevin Tahmoush through Catalant’s online talent marketplace. The right independent consultant can take your journey from exhausting to exhilarating.