In the words of Genghis Khan (doubtless, one of history’s most acquisitive figures), “If you're afraid - don't do it, - if you're doing it - don't be afraid!”
“It is not sufficient that I succeed - all others must fail” is a less magnanimous quote, also attributed to Mr Khan, but we’ll leave that one alone.
Mr Khan might have been an illiterate nutter, but to have established and presided over what was to become the largest contiguous land empire in history1, he clearly knew a thing or two about synergies.
Synergies are usually the bedrock of M&A activity. Identifying them is one thing but validating and realising them in technology/infrastructure integration and the organisational complexity of a post-merger environment can be challenging. Comprehensive data/numerical analysis that unequivocally delivers definitive confirmation of synergies (which often span both sides of the P&L) enhances organisational confidence in its negotiating position, valuation/dilution and informs a clear understanding of deal breaker thresholds.
An important distinction too, between M and A is that mergers (M) are effectively investments in your company (while acquisitions are investments from your company). Investments in your company (M) necessarily mean potentially divisive discussions on respective valuations, which then inform equity, share swaps and dilution deliberations. It all starts with agreement on valuations. In this regard the process should be respected and treated much the same as contemplation of an incoming PE investment, with all the preparation and rigour that that necessitates.
On the acquisition side, an increasingly onerous, global regulatory environment will continue to throw up opportunities. For the right operational fit, an acquisition can provide a relatively low risk approach to consolidation of market share and geographic expansion in a BAU context, as well as an opportunity to de-risk business and revenue models in a diversification scenario.
Companies operating within dynamic, high growth industries such as ours are often pulled in different directions as early business models evolve. This can lead to unintended operational complexity and costs associated with the organisation’s ongoing support of a legacy business unit/company that is perhaps no longer core to the primary operational focus.
Our experience has demonstrated that the degree with which the business unit/company can be packaged up (de-coupling from technology stacks and infrastructure layers), externalised and positioned as a stand-alone, going concern, will have significant impact on the sale price/return.
Successful outcomes here are obviously founded on a multitude of variables, the most critical of which we suggest is, degree of investment readiness – financial KPI’s (quality of revenues), robustness of compliance, systems, processes, governance and the like. At the snapshot in time, a high degree of “investment readiness” will directly translate into a) minimising dilution (M), reducing cash or equity outlay (A), realising a premium price (D) or at worst, enhancing negotiating leverage.
Whether it’s a merger, acquisition or divestiture, we have the utmost confidence in our stewardship of the process, based on a robust, proven framework through which to administer it.
1This is neither a recommendation or endorsement of Mr Khan’s acquisition approach or “negotiating” style.