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Three Ways Programmatic M&A Helps Companies Realize High Value

This article is more than 4 years old.

Mergers and Acquisitions (M&A) activity has been on a rise in recent years and shall continue to be vigorous in the future. Companies will continue to do acquisitions to expand their product or service offerings and to acquire new intellectual property or technology capabilities.

Most M&A deals fail to add value, however. McKinsey research has found that acquirers achieve success more frequently when they regularly complete small deals. McKinsey defines this approach as programmatic M&A. Companies following this approach have become masters of the art of identifying, negotiating and integrating acquisitions.

Programmatic acquirers use specific practices that sets them apart from their peers in all four stages of M&A. These serial acquirers reallocate M&A capital to the most strategic business units, have defined processes and criteria for due diligence, and align top teams ahead of an integration.

The four stages of M&A transactions are strategic sourcing, deal execution, integration and the M&A operating model. Spanning all four stages, however, programmatic acquirers focus on building end to end M&A operating model with clear performance measures, incentives, and governance processes.

In M&A strategy and sourcing stage, successful acquirers align their acquisition strategy with corporate strategy. They reallocate capital regularly to the business units that align most with their overall strategy. They also have the insights on which assets to buy and sell to realize their company’s goals. This allows them to shape their portfolios more proactively.

During due diligence and deal execution, programmatic acquirers follow a defined process. These processes enable them to make go/no-go decisions at each stage of the deal. They have a strong criteria set for making a non-binding offer as well as for reaching a binding offer. They gather information about revenue and cost synergies at several points in the M&A process. This gives them a head start on planning for integration. They dedicate more time aligning people, getting buy-in from leadership and developing measurements for the new company’s vision during the integration process. Getting buy-in from leadership is important to building trust. These acquirers gain the trust of CEOs by effectively communicating key messages throughout their organizations.  

Finally, when it comes to M&A operating model, acquirers develop ongoing internal structures and processes by establishing clear ownership for each phase of transaction. They codify knowledge gained from previous acquisitions and develop playbooks for future deals. This can enable them to develop integrated business cases, carefully analyze synergies and plan for integration.

How can companies improve M&A success rate?

Companies following a programmatic M&A approach can increase their odds of strategic success. When employed successfully, this can lead to value creation. A programmatic approach won't work if companies don't treat M&A as an enduring capability.

Companies need to have a centralized and dynamic process for evaluating prospective deals. Companies must establish a central M&A team that has a mandate from the CEO and CFO to work directly with the strategy and corporate finance functions. The central M&A team should co-ordinate with individual business units and work together. They should streamline handoffs between the diligence and integration teams so that early synergy findings inform later integration timelines and financial goals.


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