Value-uniqueness is the deal rationale brought to life. Typically the deal rationale is built on detailed, pre-defined cost synergies, plus a number of additional added-value growth opportunities normally focused around access to new markets, new customers, complementary product portfolios etc. But the detail at this point is often scant. It is this pragmatic and speedy execution of this second part of the equation which will define the medium term (i.e. more than 1st year of cost savings) enterprise value of the merger. Focus on the extraordinary.
To explain. 70%+ of M&A fails to deliver value for shareholders. And yet three key factors are evidenced in all mergers:
Why Will 1+1= ≥3 ?
Once the cost synergies are exploited, what is it that is special about the merger? Unbelievably, some mergers never take the time to find out or rely upon the wisdom of the investment banking analysts – few of whom have ever actually set foot inside facilities of the target organization. What is unique and can only come about because these two organizations (or groups of organizations have merged? Why will. What will deliver the value required in year 2 and beyond and to convince the next investor that this business has great future potential? The value-uniqueness of the merger lies dormant.
- Latent Competitive Advantage?
Locked away in all mergers is a wealth of latent value that has simply become subsumed, buried or sidelined beneath the mechanics and bureaucracy of previous business strategies and mergers over time. These are often manifested but not specified on the balance sheet under acquired goodwill or may be held latent in satellite offices, unexercised as it is not seen to be part of the strategy at the time. Can this be identified, organized and architected into NewCo’s future?
- Buy-In and Alignment:
It is how we use these assets (once discovered) within the architecture of the NewCo business and how and ‘if’ the new 1+1≥3 value can be ‘unlocked’ from the natural resistance to change that are the critical factors to change. Is the new competitive advantage scalable, are some parts of the NewCo organization better hived off to allow their specialty to flourish, is there a common understanding amongst the leadership as to what the core business now is? These are all alignment and buy-in questions – they fall under the category of culture which both studies and experience demonstrates is the single greatest point of failure in a successful M&A. The deliberate proactive management of Buy-In and Alignment are low-cost risk mitigation factors and increase speed of execution.