The M&A process provides dealmakers with several opportunities to enhance acquisition value — as well as pitfalls to destroy it. What defines good targeting, negotiating, due diligence and integrating?
Mergermarket and Vintage gathered five experts to discuss how the dealmaking process has changed. As well as this, they offer up the lessons they have learned, through decades of dealmaking experience, regarding what makes for successful M&A targeting, negotiation, due diligence and integration.
Q: What M&A factors, both internal and external, do you consider when determining a list of targets for acquisition?
Brian Moriarty, former Vice President, Hewlett-Packard > It depends on the situation. From the point of view of a technology company doing standard deals, it would start with an analysis of your own gaps — in your product line, your technology, perhaps your geographic coverage. If you’ve decided to fill those gaps through inorganic means, then you need to identify what companies out there can fill the gaps. So, after compiling a list of potential targets, you narrow it down based on further criteria — size, affordability, reputation, product architecture and so on.
Karim Motani, Corporate Development and Strategy Director, 1800flowers.com > The key items for us are strategic fit and the financial impact of the acquisition. In terms of strategic fit, we have an internal team looking at the product categories and distribution channels we want to get into. In terms of financial impact, the size of the business is a major factor for us. We’re usually after businesses with more than US$50m in sales, and ideally with better margins than ours. Even when a business doesn’t meet our financial criteria, our ability to drive cost and revenue synergies that will unlock value will put a target higher up on our list.
Marshall McKissack, Managing Director, Head of M&A, Stephens Inc. > What we do is help clients refine what they are looking for in the targeting phase, so that typically begins with a strategy discussion to determine the theme of the targeting. A typical theme, for example, is looking at an acquisition strategy relative to a traditional strengths, weaknesses, opportunities and threats analysis.
Some clients are looking to build on their strengths and leverage them in a synergistic way. Others are looking to shore up weaknesses and therefore plug holes in organizations or weaknesses in product offerings. Or then again, broadly speaking, responding to specific threats or opportunities available in the marketplace can drive an acquisition strategy. After that baseline conversation with clients, then it becomes a question of financial and organizational capabilities.
Jeff Drazan, Managing Partner, Bertram Capital > We look for companies that fit our style of investing and value creation model. We are a buy and build shop with an additional emphasis on creating value through IT excellence. With that in mind, we look for companies that operate in fragmented industries with actionable acquisition targets and opportunities to apply our expertise in e-commerce and digital marketing to expand sales.