January 10
M&A Science Live - The Evolution of M&A Functions
August 25, 2022

Strategy is a crucial part of M&A. Without it, acquirers may end up purchasing companies that compromise their time and resources. A good strategy shapes how to approach a target company, the questions to ask during diligence, and how to integrate the newly acquired business. This article will discuss developing strategy with business leaders, featuring Michael McDonald, Director, Strategy at Koch Engineered Solutions.

"If you're completely close-minded and stick to your guns no matter what, then you're gonna find yourself in trouble." - Michael McDonald

Creating a solid strategy requires collaboration between the strategy team, corporate development, business leaders, and executives. If done right, M&A is a powerful tool that can drive business value. Michael breaks down the five steps of strategy creation.

Five steps in formulating a strategy

  1. Worldview 

Start with a thorough assessment of the world. Identify what is trending, what is not, and where the world is heading. 

  1. Vision

Identify the overall corporate strategy. How can the company best position itself to succeed and drive profit? Have a clear vision and goal.

  1. Identify Gaps

Collaborate with business leaders and identify where the company currently stands. Map out the existing capabilities and compare them to the vision to identify the gaps.

  1. Filling the gaps

It's time to decide how to fill those gaps. Is it better to buy or build a capability needed? What can the company do now?

  1. Execution

If the plan is to acquire, start identifying what kind of companies to look at. Have a clear plan on how to source deals and how to approach the target company. 

Challenges in implementing the strategy

The biggest challenge when implementing the strategy is aligning with all the personalities involved. Each person brings their mental model to the table, and it is crucial to understand them. There are two roadblocks to implementing a strategy:

  1. Dealing with uncertainty - Make every person involve understand there's always uncertainty in every deal. Communicate the deal rationale, backed up by research, to increase confidence. 
  1. Dealing with biases - If someone is biased in a specific transaction, avoid confronting them. Challenge their thinking and ask the five whys. It's essential to understand anyone who is biased and break those biases down because at the end of the day, there’s always a chance the biases are correct.

Changing the strategy 

No strategy lasts forever. As the world changes, be agile and open-minded to adapt to the surrounding environment. Always look around and be aware of what's happening in the market. If there is a disruptive technology or something massively changes in the industry, It's time to reassess the strategy.

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