Rethinking the Way We Buy Business

Three years ago we undertook research into successes and failures of media Mergers & Acquisitions (M&A). The key finding was that the organisational structure / culture rarely, if ever, considered during the due diligence (DD) process when the acquiring company was sizing up its target. However this was actually the main reason for failure post deal.

This finding was symptomatic of a world where M&A has traditionally focused on financial modelling first and commercial potential second. As the logic goes, if the numbers “stack-up”, the rest will follow.

However, there is a question as to whether the credit crunch should be forcing a rethink. Had firms spent more time understanding the fundamentals rather than the financials, would so much value have been wiped off the M&A market in 2009?

But what does “forcing a rethink” mean?

Firstly, ask more questions. Anecdotal evidence suggests that banks are now becoming far more demanding about due diligence before they are willing to offer the loans to fund a deal. This means looking in detail at operations, technology, brand and organisation to make sure that the acquisition is fit for purpose.

Secondly, start with the end in mind. Due diligence needs to identify whether the target is able to grow in-line with the business plan of the company acquiring it. It should also identify issues associated with integrating into the mother-ship. These answers provide a rounded picture of costs that help to define a fact based ROI.

Finally, use operators. The market is witnessing a new breed of DD experts that are willing to work on a risk/reward based approach charging lower up-front costs in return for long-term post-deal relationships.

By building on these ideas – the rest will “stack-up” and so the numbers should follow.

Engine is proud to launch its new M&A proposition, View 360. For more details, click here