It has been an interesting year, hasn’t it? That’s no less true in the mergers and acquisitions market. I think everyone is holding their breath right now.
As we were leaving 2016, there was barely a doubt that 2017 was going to be a big year for M&A’s. Deloitte’s M&A Trend Report put that number at 75%. A whopping 75% of us expect that deal activity would increase again in 2017, giving us 5 consecutive years of upward movement.
A Slow Start
Are we bad at predicting things? Or did M&A’s grind to nearly a halt in the first quarter because everyone is in a wait-and-see mode? There was every reason to expect the numbers to go up in 2017 even if you looked only at the presidential administration’s pro-growth stance and the expectation that the UK leaving the EU would force companies to divide or shed British operations as they work toward an economic separation from the rest of Europe.
I think the deals are happening but the ink just isn’t quite dry on the signatures. Everyone is waiting to see how things play out to make sure they’re making the right move. Knowing the financial executives that I do, they aren’t just stilling on their hands waiting. They’re preparing.
When a merger or acquisition is considered, there is risk involved. Is it the right move? Is it going to be successful? There’s a lot riding on it when companies tweak their structures. Mitigating that financial risk and being deeply involved in the strategic decision making (or providing the data needed to support it) includes taking steps that we can control.
The Financial Executives Research Foundation (FERF) year-end report speaks to navigating many of the controllable risks.
Planning, Planning, Planning
Blending companies together is complex. The logistics of managing the physical assets. The attention that needs to be spent considering the management, division, and combination of the employees in each unit. And there’s the What-If scenario planning that needs to play out a multitude of scenarios to aid in making those tough decisions.
The FERF study notes that “effective integration planning is considered the number one factor in ensuring that deals work.” I believe it. In fact, I know it.
Dealing with Data
Accounting and financial teams are experts in managing data. The timing of deals, the money involved, the buy-or-no-buy decisions all need to be supported with data. Gut feelings still count, but the numbers need to be able to make it work.
Planning for an M&A isn’t just the go-or no-go though, making an M&A successful goes much deeper. Playing out and analyzing scenario options for the new business combination is critical. Will combining floorspace reduce expenses? Are any of the product lines redundant with ones we already make? Are their economies of scale to be had if we pool our needs together with our insurance policy coverage?
The answers we find for questions like those might counter our intuitive expectations. Or they could support them. Either way, looking at the value of exploring the anticipated business combination needs to consider both the pre-M&A worth of the companies and the intimate details of managing the combination going forward. M&A’s can be tough. But they can also set the stage for explosive growth, land us in new markets, and bring us spectacular new talent.
If an M&A opportunity shows up today, how would you support the decision-making process for the deal and analyzing the ongoing operations? If you’re not confident that you have the tools and know-how to complete the extensive what-if scenario planning currently, read up and explore the M&A world and be ready for the opportunities when they come.
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