A transaction can be a waste of time and money if pursued without a solid M&A strategy. On the other hand, teams with a well-planned strategy can pick the right targets and pursue them proactively. Sreepathy Viswanathan, Chief Corporate Development Officer, HGS Healthcare, has 25 years of experience in corporate development, and helps us understand how to build an effective M&A strategy.
"The worst thing that can happen to an organization is to make the strategy exercise a budgeting exercise." - Sreepathy Viswanathan
According to Sreepathy, strategy is about alignment. With a good strategy, you can be proactive in the search process rather than boiling the ocean. It doesn't guarantee success, but it will help to improve and iterate the strategy as you move forward.
When it comes to formulating a strategy, involve the salespeople, account managers, finance folks, and operations team running the business daily. These are the people who understand the current company, gaps, and where the market is going.
The strategy should be related to your capabilities, and it starts by asking these key questions:
And after creating filters and criteria based on your capability, start looking outward:
When it comes to your own responsibilities, benchmark yourself with others to know where your skills lie, so you can focus on your strengths.
The integration plan needs to be clear when prospecting a target because 80% of an acquisition’s potential value is based on the integration. Even if you purchased a great company, if the integration is not done properly, the value will leak, and the deal will be a waste. To align synergies correctly, put the right people in place to run the business, especially when entering a new market segment. If the new leaders don't know how to run the acquired company, then it might be best if the seller remains in control of the day-to-day operations.
Whether it is the overall corporate strategy or M&A strategy, relationships matter. A strong existing relationship can save deals because it makes it easier to have difficult conversations. Forming new relationships with past acquisitions is also crucial, as they can serve as references for future acquisitions. If the acquired company isn't happy about your new leadership and the direction the company is going, the market will know about it. A bad reputation will make it hard for you to buy future companies.