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January 2, 2023

M&A is an excellent tool for growing a company. Still, acquirers should consider a variety of strategies before committing to a transaction. Choosing the right growth approach also dictates any integration plans. This article will talk about executing various strategies and how to get a CEO on board, featuring Rohit Dave, Head of Corporate Development at Block.

"Alignment on what you're trying to accomplish from a business need perspective is critical when deciding the type of acquisition to execute." - Rohit Dave

Three ways to generate deals

Deal fever is real and is one of the leading causes of failed M&A. To avoid this, acquirers must leverage their overall strategy before doing acquisitions. According to Rohit, there are three ways to generate deals. 

  1. Bottoms-up approach - The best way is to proactively generate deals by understanding the business's needs. Then understand what's going on in the market and start approaching companies. The goal is to get consensus from the bottom all the way to the executives and the board of directors. 
  1. The reactive approach - This is where corporate development receives inbound deals from investment bankers, investors, and private equity. 
  1. Top down approach - This is the worst approach of the three and is the most susceptible to deal fever. The top down approach is when executives dictate the company's direction, and corporate development must assess the viability of the target company. 

Types of M&A strategies

When choosing an M&A strategy, teams must understand the deal's strategic rationale. In addition, understanding the north star will help identify the proper transaction to pursue. There are three major types of M&A strategy:

  1. Acqui-hires - A talent-focused acquisition strategy that accelerates hiring to fill a talent gap. 
  1. Tuck-ins - An asset-focused acquisition strategy aimed to accelerate the company's roadmap by acquiring something that would be difficult to build or time-consuming. 
  1. Strategic deals - These are deals where acquirers buy self-contained or fully-operating businesses. The goal is to expand into a new market, geography, or product offering. 

Getting buy-in from leadership

To avoid deal fever, the deal team must get buy-in from the CEO and board of directors. To get buy-in, Rohit suggests two things:

  1. Use data - Look at the economic data of the target company and create projections that will show its future potential. Good decision-makers will often follow the data.
  1. Create stories - Data is never enough. Create good narratives around the target company that will make it more appealing. Don't fabricate things. Instead, paint a clear picture of the benefits of the acquisition and the road to success. Don't try to deliver the narrative all at once. Instead, share the narrative ahead of time on a piecemeal basis.

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