Growth drives value creation, and acquisitions offer a way to grow when organic growth is limited. On the flip side, actively pruning the business portfolio over time helps a company to sustain its capacity to deliver value. As a result, mergers and acquisitions (M&A) and divestitures are increasingly critical to business success.
However, buying a business is a calculated risk. What may seem attractive from the outside may look entirely different once an acquirer takes full control, and it’s no secret that a majority of M&A deals fail to deliver the promised synergies or expected value. For some companies, the problem lies in a flawed strategy for buying the target company. For others, the problems occur after the close as it becomes clear that insufficient rigor was paid to merger integration.
That’s why due diligence is such an important step in the M&A process. In a competitive marketplace, a single bidder rarely outsmarts the rest of the market. Instead, the rationale to pay more than competing bidders must be based on the ability to create more value with the acquisition.
Sometimes choosing to walk away from a deal can be more valuable than pursuing it. Done right, due diligence helps acquirers minimise risk and gives them confidence that they can actually create sustainable value through the acquisition.
We help cut through the noise of a transaction process and tie the deals’ attractiveness closely together with the acquirer’s broader strategy.
Due diligence has become dramatically more complex, and in some cases acquirers will have to cope with as many as ten different work streams linked to due diligence in the course of evaluating a single deal.
Many companies approach due diligence as a purely financial exercise, but capturing value in the merged entity depends mostly on non-financial issues. This requires two things: extensive industry knowledge to be able to project revenue synergies, and the required functional knowledge to identify, assess, and validate operational cost improvements.
Providing due diligence requires real-world, practical, and tactical experience. At Henderton, we’ve developed a comprehensive approach to guide you through the M&A process. We’ve set up frameworks which help to identify potential financial, commercial, legal, operational, technology and administrative pitfalls.
This approach covers the full M&A life cycle, from aligning acquisition strategy, pre-offer due diligence to assess target companies before the bid, post-offer due diligence where the project team has access to internal company information about the target, completion and then post-merger integration:
Strategy: strategic and financial goals, internal capability, portfolio management and resource allocation.
Pre-offer: identification and evaluation of potential deals to uncover the highest-value opportunities.
Post-offer: due diligence, quantification of synergies, and post-merger planning.
Completion: on-boarding, assessments and prioritisation of initiatives.
PMI: post-merger integration programme to realise the full benefits of the acquisition.
M&A transactions are typically done to tight deadlines and few companies have the internal resources available with the full range of skills. Bringing in the right external expertise improves the quality of the strategic rationale for buying the company and due diligence, while also accelerating the realisation of synergies and reducing integration risks.
Equally, an important role for a third-party advisory company is the ability to operate in an external role not tainted with proprietary information which would cause problems in the event the deal did not materialise.
We support our clients at every stage of the deal lifecycle, from evaluation to execution and integration, acting in both buy-side and sell-side roles:
Strategic alignment: understanding the current strategy and any significant strategic shifts envisaged post-transaction and determining if the company’s strategic and financial goals can be achieved more easily via organic growth or an acquisition.
Industry analysis: systematic sector screening of addressable market size, growth, trends, demand drivers, projections, and benchmarking, consulting industry experts to provide an understanding of industry dynamics, players, and trends.
Identifying potential segments: conducting a comprehensive screen of the industry value chain and ecosystem to identify future sources of profit, as well as disruptive technologies, customer purchasing preferences, and key sources of defensible competitive advantage.
Competitive positioning: a deep scan of the competitive context including benchmarking of operating and financial metrics for the peers in the industry.
Selection criteria: transparent criteria which support the strategic objectives of the acquisition and help zero in on the right market segments and target candidates.
Target selection: rapid selection process of the right candidates based on the section criteria, industry knowledge and financial metrics.
Prioritisation: reduction of potential targets to an actionable list of priority targets which match the acquirer’s strategy, potential for synergies, and availability of the asset in the market.
Process support: management of the due diligence process, liaising with the various stakeholders involved, including investment bankers, lawyers, and regulators.
Commercial due diligence: review of business plans and commercial considerations related to market dynamics, competitive landscape, customer feedback, growth opportunities, and risk.
Management due diligence: assessment of management capabilities, potential incentives and impact on business deliverables and track record of the type of transformational change which underpins your investment plan.
Operational due diligence: determining the soundness of the target’s capabilities and assets, including a review of how strategic investments are governed and executed.
IT due diligence: assessment of IT systems, infrastructure and processes to avoid dysfunctional, incompatible systems or hidden liabilities.
Synergy and value creation: estimating the financial and strategic value acquirer can unlock, either by changing the way the acquisition is managed or by integrating it with the acquirer’s core business.
Valuation: assessing the value of the target, based on financial forecasts but also inputs from all the different streams of activity.
Integration blueprint: post-merger integration planning should be an integral part of negotiating the deal. The PMI roadmap will ensure preparation to rapidly realise synergies, quantifying opportunities, costs, execution priorities, issues, and red flags.
Transaction advisory: M&A lead advisory, trade and asset sales, debt advisory services, and preparation of business plan and investment rationale, valuation, and identification of buyers.
On-boarding: onboard the management team and establish business objectives, incentives, and corporate governance procedures including reporting and KPI dashboards.
Value enhancement priorities: identify and accelerate potential focus areas, such as top-line growth, procurement, working capital and CAPEX, SG&A and IT, and manufacturing.
PMI: please see our section of post-merger integration for full details of our approach.
If you would like to learn more about our M&A experience, please contact our Transaction Advisory team.
We have experience on both buy-side and sell-side advising both management teams and investors across a range of geographies. Deals we have advised on include:
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