Nothing in recent times has changed the business landscape as quickly as the current Covid-19 pandemic.
Leaders have been forced to rethink their M&A strategies, a new lens has been created through which to consider potential targets and new factors will influence integration planning. Research indicates that businesses outperforming peers following the last recession had participated in 10% more M&A deals1. Those organisations that continue with M&A as a growth lever should consider four key actions to drive success.
1. Adopt digital technology to aid remote due diligence and deal execution
Executing a deal is fundamentally a relationship-based exercise and lockdowns have meant that face-to-face meetings are no longer an option. As a result, it will take longer for leaders to determine whether potential targets are the ‘right fit’ in an environment where normal business interaction has been restricted. This theme continues into due diligence where meetings with management teams, deep-dives, site visits etc have been made more difficult based on remote working conditions.
In the current climate, buyers will be even more diligent and sellers need to prepare for additional scrutiny of their businesses, particularly revenue forecasts. It is important that the most time-consuming parts of the diligence process are digitized and simplified as much as possible.
New technologies will continue to help drive due diligence processes
A recent survey of over 2,000 M&A practitioners2 found that new technologies will continue to support the acceleration of due diligence processes. 67% believe that, by 2025, the M&A process at their company will have hit a high level of digital maturity and technological sophistication.
Examples in practice:
- Using a Virtual Data Room (VDR) with AI and machine learning technologies to upload (categorisation and indexing) review and synthesise large amounts of data more efficiently
- Making use of advanced Q&A features within a VDR to help streamline the Q&A process virtually between buyer and seller, increasing collaboration and communication among parties
- Using tablets / robots to conduct remote due diligence where applicable - ‘virtual site visits’ can be used for manufacturing site inspections
2. Enhance assessment of contingency planning processes
Businesses have been forced to implement contingency planning processes in response to Covid-19 and buyers will be keen to assess what impact these processes have had in protecting business performance.
Contingency planning can be conducted with varying levels of rigour and should include responses to key supply chain, infrastructure, cyber security, employee, operational and financial risks.
One area to assess is the extent to which existing capabilities and processes are digitised. For example, in the Energy and Utilities sector, power stations have started to take some of their most complex processes online (i.e. managing outages through technology) and businesses across sectors should be looking to explore opportunities to digitise key processes to ensure they are future-proofed.
Focus should also be placed on understanding the policies and practices introduced throughout Covid-19, particularly those that relate to the operation of distributed workforces and remote teams. This is particularly important if governance processes are not yet fully aligned between the two organisations.
Gaining a deep understanding of this, as well as the ongoing strategy for dealing with changes resulting from Covid-19, provides a good basis for assessing any gaps in anticipation for subsequent periods of uncertainty.
3. Risk assess planned synergies and agree an action plan
The achievement of forecast transaction synergies (both revenue and cost) is likely to have been in a state of flux as a result of Covid-19. For example, moving into a single premise during lockdown may not have been practically possible, thus requiring a lease extension. Achieving revenue synergies is arguably even more challenging as demand for products and services has dropped-off across many sectors.
There is a need to transform deeper and faster
Despite this, leaders view Covid-19 as a springboard from which to transform deeper and faster in order to remove their operational inefficiencies. Business integrations fall into this remit. As global lockdowns begin to ease, integration teams will be under pressure to pinpoint additional tasks to speed up benefit delivery, ensuring overall targets are met as quickly as possible.
Re-evaluate forecast synergies
Original synergy assumptions will need to be re-evaluated and businesses should look to assess all forecast synergies and key milestones to understand how Covid-19 is likely to have impacted the achievement / phasing of each. An action plan should be agreed with the integration Steering Committee which may include bringing in additional resources to help accelerate benefit delivery.
4. Review “100 day” integration plan and assess planned change interventions and opportunities to improve the employee experience
It is well-researched that culture ‘clash’ and failure to embed change can derail the benefits of an acquisition.
At present, employees experiencing an integration face two new realities and heightened change as they adapt to “new normal” ways of working. Onboarding new employees well on “Day 1” has become much more difficult in a work-from-home context.
Consider rephasing integration initiatives
It makes sense therefore to reconsider the phasing of integration initiatives. For example, delaying the migration of employees onto new back-office systems as a temporary measure may alleviate some disruption. Change plans should also factor in new ways of working being considered organisation-wide (e.g. greater flexible working).
Measure employee morale and engagement
Employee morale and engagement should be measured proactively, using regular ‘pulse’ surveys to understand how employees are feeling about the new organisation. Early and frequent communication is a way to alleviate concern and reduce unnecessary speculation that may impact morale and employee experience within the new organisation.
Apply learnings from across the organisation
For larger organisations, it may be that smaller counterparts already have nimble processes and agile practices in place and were better prepared to cope with the Covid-19 crisis. In these situations, larger organisations should take these learnings and use them to benefit the wider organisation as a whole.
The path ahead
There is no hiding from the fact that Covid-19 will have lasting effects on approaches adopted for executing deals and integration. Implementing one or more of the immediate steps outlined will help to drive M&A success in what is an extremely unpredictable time.
What are you doing to ensure M&A success?
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