Mergers & Acquisitions

The business case defines the transaction’s path to value creation. It is anchored on the investment thesis (or in the case of a divestiture, the divestiture case), which reflects the informed hypotheses and associated formula for generating a targeted return. It also includes transactional mechanics for the financial deal, as well as operational plans that guide the various stakeholders to take specified actions that capture the projected value from the transaction. The business case outlines key assumptions for value creation, allowing various internal and external stakeholders to assess and validate, refute, or modify those assumptions. Above all, the business case is the key document that facilitates informed decision making about the transaction, including whether to undertake it at all, under what conditions, and with what economics.

• To what degree does the contemplated transaction create a unique or significantly differentiated value creation opportunity in the market, and what options are viable to enhance that opportunity?
• How confident are we in our valuation of the investment opportunity, and which value driver assumptions could benefit from more extensive external validation?
• Have we comprehensively accounted for the most critical risk factors and interdependencies for the transaction and the post-transaction business?
• What can we learn from precedent deals, and how can we best apply that knowledge to maximize value from the deal?

Identifying and validating prospective targets for M&A activity is the starting point for investment-led growth strategies. Corporate Development, Corporate Strategy, and institutional investment teams must maintain a finger on the pulse of evolving market trends that reshape competitive landscapes and realign value chain dynamics in their target verticals and segments. They also must maintain a prospects list that is sufficiently comprehensive to offer broad visibility across target industry segments without becoming unwieldy and impeding the team’s ability to rapidly and accurately identify actionable insights.

• How can we ensure that our prospects list remains focused, without losing insight into the broader pool of potential transaction opportunities? 
• How can we derive meaningful analytical insights that go beyond what the publicly available numbers reveal? 
• In what ways are shifting value chain dynamics in the prospect’s market segment creating either opportunities or complexities that are relevant to our deal strategy?
• What tactics can we employ to stay current with our core prospects in order to recognize and act on quickly emerging opportunities?  
• How can we maintain a competitive edge by connecting industry and market trends to specific transaction opportunities before others do?

Deciding whether and how to proceed with a merger, acquisition, or financial investment requires an informed viewpoint. Strategic and financial investors rely on the longstanding experience of themselves and external experts, targeted research, and methodical analysis to develop, validate, and evolve that viewpoint. The art of due diligence is to systematically reduce uncertainty about the investment opportunity in order to validate or refute the investment thesis with confidence. Due diligence seeks to be sufficiently thorough without necessarily being exhaustively comprehensive, spanning multiple dimensions of a prospective deal – strategic, operational, technical, regulatory, and financial. Even when the effort yields the answer “no”, that result is generally far preferable to undertaking an ill-conceived investment.

• How can we simplify and accelerate our diligence process without sacrificing objectivity, accuracy, and insight into opportunity and risk? 
• How reliable are the sources of our diligence information, and what can we do to improve our confidence in the results of our research efforts? 
• If our research and analysis strongly indicate that this deal is not viable, what would it take to make it viable?

Capturing the intended value from a merger or acquisition is a combination of art and science. The art revolves around the intricacies of change management – shaping a shared vision for future growth as a unified entity, outlining a clear path for people to follow, creating compelling incentives, and effectively managing organizational dynamics. The science relates to the structured methodology to drive integration and generate value commensurate with the pre-deal investment thesis, while identifying and infusing new sources of value where possible. These two dimensions are inseparable, and navigating them simultaneously is both necessary and complicated. An external advisor can provide objective insight, program management capabilities, expanded analytical support, and critical momentum for driving initiatives.

• What unforeseen factors have we learned since transaction close that weaken or jeopardize the pre-deal investment thesis, and what are viable options for managing those risk factors? 
• What tactics are effective at preserving business continuity after transaction close, and how can we most effectively apply them in the specific context of this deal? 
• Do our synergy assumptions adequately consider potential revenue growth effects as well as cost efficiencies, and how can we spur innovative thinking to uncover more sources of value? 
• How can we increase the probability that our value creation initiatives will achieve their objectives?

Quantifying the tangible value that strategies, initiatives, projects, investments, and key decisions generate for the business is essential for gauging the efficacy of those plans and activities. Linking strategic plans and organizational work activities to numerical measurements – such as ROI, ROIC, and EV – supports valuation activities, scenario modeling, and decision making. Whether for preliminary planning and forecasting, in-progress assessment and management, or after-the-fact analysis, assigning value to plans, work activities, and investments allows the business to proceed with confidence, know if it has achieved its objectives, and inform the path ahead.

• How can we discern which specific initiatives – and specific work activities within them – drive the most and least value? 
• How can we use business value architecture approaches to logically prioritize resource allocation based on valuation impact? 
• What does dynamic scenario modeling across our strategic initiatives imply for the future value of our business? 
• Does our current set of core business initiatives allow us to meet or exceed our cost of capital and achieve competitive returns vs. our industry peers? 
• How would not undertaking a prospective strategy or business initiative adversely impact our market capitalization?