Overview

Study after study has shown that the majority of M&A transactions have destroyed shareholder value for the acquirer.   However, this does not mean that all acquisitions are bad; in fact, many of the most successful shareholder value creators are serial acquirers.   Indeed, M&A can be a viable and value-creating avenue for growth, but it requires careful planning, evaluation and execution to ensure success. Avondale has helped clients develop sophisticated acquisition strategies, evaluate acquisition targets and create detailed integration plans across a variety of industries.   The scope of Avondale's advice in M&A includes the following:

• Acquisition strategy design and target screening Target valuation and development of a clear value-capture proposition Strategic due diligence and integration planning and execution
• Evaluation of other opportunities including divestitures, joint ventures and partnerships
  

Our Perspective

M&A is both costly and risky, making it challenging to create value from acquisitions. However, when managed properly, M&A can be a viable source of profitable growth. Failed acquisitions are typically blamed on poor execution, but often the issue is more fundamental; in many cases the acquisition has not been carefully planned. Investing the time upfront in careful preparation with rigorous analysis and meticulous planning can help mitigate the risks in M&A. Indeed, disciplined planning and preparation is the single most important contributor to successful acquisitions.

It begins with the most fundamental step which is also the most frequently overlooked - developing an explicit investment thesis which answers why an acquisition strategy is to be pursued. In most cases, the investment thesis centers around one of two rationale: (1) to build or protect a competitive advantage in an existing market, or (2) to leverage an existing competitive advantage to enter a new market. Precisely defining the acquisition objective not only fosters the necessary discipline and focus when screening and evaluating potential targets, but it also provides the context to determine how the acquisition will create value. Clearly defining the value-capture proposition from an integrated strategic, operational, organizational and especially financial perspective creates the fundamental blueprint for creating value. Every cost-save, cross-sell or other revenue enhancement opportunity must be meticulously researched, justified and planned, culminating in a prioritized list of the key value drivers which will focus management on the most critical and highest-value opportunities. This blueprint then serves as the basis for developing a detailed implementation plan which assigns accountability and defines the necessary actions, milestones and performance measures to track progress. Finally, an extensive risk assessment assists in contingency planning to prepare for potential complications.

Critically reviewing the investment thesis, developing a clear value-capture proposition and carefully preparing for implementation and potential contingencies leaves little to chance, thus paving the way for successful execution.

Typical Questions to Consider

• In which markets and segments do we have a competitive advantage or disadvantage?   What drives our competitive advantage or disadvantage (e.g. cost position or customer offer)?
• What are the key market trends in these and related markets?   Where is there growth and what is driving it?   Are market forces changing the overall profitability of the market?
• Are there opportunities for us to leverage our competitive advantage in new markets and segments?   Is there a credible threat to our competitive advantage from competition or market trends?   Are there opportunities to improve our competitive advantage by acquiring competitive advantage from other companies?   What impact does this have on our existing business model?
• What is the main objective of an acquisition strategy and what are the key criteria to screen and evaluate potential acquisition targets?
• What is the current value of an acquisition target based on discounted cash flows, comparable multiples and market value?   What kind of acquisition premium is likely to be necessary?
• How will we capture value from this acquisition?   What costs do we need to cut and where do we need to invest to generate incremental revenue growth?   What is the likely impact and value of these opportunities?   How does it compare in total to the likely acquisition premium?
• How will the target company be integrated given the value proposition and what steps are necessary to make it happen?   Who will have responsibility, under what timeframe and with what kind of performance targets?
• What are the key risks to the successful integration and what are the contingency plans for each risk?