Once you have identified and assessed the opportunity for M&A, and believe it is worth pursuing, it is time to envisage and quantify the actual benefits you can achieve through acquiring the company.
It is unlikely that just taking over the company and letting it operate the same way will maximise the potential return. So, what steps should you take create additional value?
Part 2: Value Creation: Design & Transform
Your assessment of the opportunity (Commercial/Financial/Operational) will have given you an understanding of its current value, risks and costs for the company. You should also have some idea of where there is potential to reduce costs, increase revenue, and open new markets. For a merger you will have identified any possible synergies with your existing portfolio companies. What is now required is the detailed modelling and design of the new operating business, followed by a rapid transformation phase to put in place the design changes, and therefore unlock the potential value identified.
Modelling and Designing the Acquisition
The key areas to model and redesign are:
- Performance: Having assessed the reported performance of the company, you will need to define your ideal performance metrics (profitability, growth, cash, costs, etc). Market analysis will show you the KPI comparisons with the company’s competitors which you can use to model performance targets. You can then set achievable performance goals, along with the changes needed to achieve them.
- Processes: Understanding the key company processes, particularly customer-facing and back-office processing will provide you with a good insight into the efficiency and effectiveness of business operations. Identifying blockages, duplication and errors will allow the design of higher productivity processing and improve costs and customer satisfaction. Process modelling tools allow the mapping and modelling to be rapidly carried out to define standardised and optimised processes.
- People: Understanding the talents and skills that exist in the company workforce is crucial to making a success of the acquisition. Identification, retention and motivation of key workers ensures any acquired company doesn’t suffer from a performance dip at this time of uncertainty for employees. Equally, unproductive staff can be retrained, redeployed, replaced or released to achieve the right mix of human resources to meet the needs of the future.
- Platforms: Information Technology and data are essential components of most organisations, underpinning the products and services offered. However, these systems can contain significant risk and technical debt making them a threat to your plans for the business. A detailed review of the core, networking and customer-facing applications and databases is needed. From this you will understand what change and investment is required to support your newly redesigned performance, processes and people in order to achieve the outcomes from the acquisition.
Top Tip: The main challenge in modelling and redesigning a business is getting hold of detailed, timely, granular data that provide a sufficiently accurate on which basis to understand and compare the business with external benchmarks, so ensure your question(naire)s are clear on the level and specifics of the information required.
Transforming the Acquisition
Through the modelling and design stage, you will have identified the changes required to ensure your acquisition delivers the results you require. The next stage is delivering business transformation as rapidly and successfully as possible. Your transformation stage will focus on applying the improved designs across the processes, people and platforms to achieve the required performance:
- Plan: You will need to bring together the individual components of your transformation activities into a single overarching plan and roadmap that provides clear milestones, deliverables, resources and measures to achieve your desired outcomes. Many of these will run as individual parallel workstreams, but interdependencies will need to be actively managed.
- Programme: The business transformation can be carried out by either the current (or replacement) leadership team as a set of BAU activities, or by appointing a dedicated programme team. If the BAU approach is taken, it is still wise to bring in external expertise and experience to advise. A dedicated programme team still requires full engagement and governance from the leadership team. In small-to-medium businesses the BAU approach is more common, with programme teams brought in for larger and more complex organisational transformation.
- Pace: One of the key enablers for a successful acquisition or merger is to carry out any necessary transformation quickly to ensure that the return on investment is as rapid as possible. Therefore, a swift pace of change is required, which is usually significantly quicker than the acquired company may be used to. The skills and capabilities required to support an accelerated plan are normally brought in by the acquirer as they differ from that required to run the company post-transformation.
Top Tip: Blended teams of existing key workers and interim transformation specialists tend to have most success in achieving the planned objectives but ensure the leadership team is fully embedded in the governance of change to ensure no slippages, expectation gaps or unwelcome surprises.
So, in summary, the value creation stage for mergers and acquisitions requires a wide range of skills and experience to rapidly complete the design and transformation. Contact us for more information on how we can support your merger or acquisition value creation.
In the next article we will describe the delivery stage where you move into BAU optimisation and transition to bed in the transformation. This will ensure that the acquisition is fully agile and can continuously improve. Follow our blog to stay updated!
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