Historically, Mergers and Acquisitions are potentially the deepest source of revenue for companies looking to expand their reach and profits. However, recent trends have made dealmakers wary of anything but organic growth.
Issues with conducting M&A
After the 2009 Recession and a recent emphasis on organic growth, M&A strategy has had its fair share of struggles. This is due to a general sense of businesses being risk averse and to common mistakes in the M&A process. Randy Ottinger of Kotter International named three key reasons for failure of M&A transactions:
1. Lack of cultural understanding. According to a 2012 study by McKinsey and co., 92% percent of M&A participants claim that better cultural understanding would have positively contributed to the success of the merger.
2. Lack of leadership. According to the same study over 50% of participants claim that turbulence in the post-merger period was due to a lack of strong leadership.
3. Lack of strategy. A general misunderstanding of business practices and company goals pervades the M&A scene. If companies are unclear on advantages and aims of new business partners, the merger is much less likely to succeed. Acquisitions are often handled as a primarily financial transaction, where in reality an firm understanding of business practices is key to making a profitable deal for both parties. According to Bain & Co., two out of three business executives are dissatisfied with how their firms conduct deal diligence.
M&A Deals in 2014
Despite a list of reasons that M&A strategy can be difficult, inorganic growth is still a viable strategy for increasing revenue and market share by a company. According to Thompson Reuters data from September 2013, U.S. mergers and acquisitions deals account for almost half (47.2%) of the global M&A market. Global acquisitions are also on the rise. According to Reuters, “Companies expect a 17 percent rise in mergers and acquisitions activity next year that would push global deal volume to its highest level since 2008.”
In regards to a lack of strategy in M&A deals, new online technologies offer many tools for business people involved in M&A research. These tools can aid directly in research, due diligence, and examination of documents related to the M&A project.
M&A Growth Strategies
1. Keep track of your diligence documents. Paying heed to documents associated with a potential merger or acquisition, such as pitch books, statistics on spending and earning, and business practices will ensure that you have a firm grasp on how the company’s business will expand and diversify your own.
2. Keep everyone on the same page. Tracking who has seen which documents is key to making sure that knowledge relating to the transaction is accessible by the necessary parties. Having distinct groupings for both sides of a business-buying transaction helps both parties become educated about each other.
3. Exhibit Leadership. Delegating tasks like due diligence, financial analysis, and planning review is paramount to making both sides of an M&A transaction feel secure. If leadership is present in an online capacity then the people doing the aforementioned tasks can rest assured the process as a whole is being monitored. The ability to observe documents and their respective downloads, views, and associated messages is a key component in managing documents online.
To learn more about Mergers and Acquisitions growth strategies, check out CapLinked’s whitepaper on The Changing Face of M&A.
Reuters: Corporates see global M&A pick-up, riskier bets in 2014 – survey
SEI: Acquire More, Fail Less: A Growth Acceleration Strategy for a Rapidly Changing World
Deal Market Blog: M&A Trends:US Continues to Shine