Mergers & Acquisitions

A merger or acquisition can add considerable value to a business, but making sure that each stage of the transaction process --from valuation to negotiation and completion-- is successful demands considerable experience and knowledge. Virtue Intelligence's M&A specialists have the insight and experience to advise corporate and private equity investors through each stage of the merger and acquisition process. We help clients develop appropriate growth strategies based on their goals, so they'll be prepared to capitalize on opportunities during the merger, acquisition, or divestiture process. From strategy to due diligence to integration or divestiture, we recommend established strategies and solutions to help provide the confidence and support clients need to achieve their unique growth objectives.
M&A transactions are typically done under tight deadlines. Few companies have the internal resources available --pool of experts that can carry out a transaction from target identification to synergy realization-- to consistently excel at all phases of the M&A life cycle. Bringing in the right external expertise improves the quality of the strategic rationale for buying the company and due diligence, while also accelerating synergy realization and reducing risks of the integration. In summary, the right external experts increase the probability that your M&A transaction will be among the few success stories that create shareholder value

MA-FlowIt is no secret that a majority of mergers and acquisitions (M&A) 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. It does not have to be this way. Strategic assessments of companies, industry expertise, due diligence, merger integration, and operational improvements represent areas where knowledge and skills are readily available. We are able to guide M&A transactions in multiple sizes, industries, and geographic regions.

  • Internal capabilities

    • We usually begin with an assessment of internal capabilities to see if they are not only available but also up to the task of meeting the company’s larger M&A goals. Most companies have relatively small M&A or business development teams, which means the processes for assessing and integrating a target company are not readily available. Indeed, the less a company performs M&A the less likely the high-risk process of integration is “routinized” or “internalized.” Large acquisitions are especially susceptible to operational and business risks and require the most attention to performing due diligence, integrating the two companies, and capturing synergies; hence, assessing the availability and quality of internal resources is the first step in achieving these goals.

  • Strategic goals and alignment

    • Mergers and acquisitions present attractive opportunities but are also risky. So, before an acquisition, it’s important to evaluate a company’s strategic and financial goals—determining if they can be achieved faster or more easily via organic growth or an acquisition. To inform this decision, we establish a comprehensive baseline of the business by markets served and by line of business relative to market trends. If our evaluation supports an acquisition, we work with the client to assess which markets will meet the desired objectives and to identify acquisition targets. We leverage experts from our global industry practices to provide an intelligent and thorough market analysis that leads to a clear understanding of industry dynamics, players, and trends. In each M&A transaction, we bring forward recognized experts who provide valuable insights to inform the “Buy or No-buy” recommendation.

  • Selection criteria

    • Financial criterion alone is a “40,000 feet” view that is not sufficient for evaluating an acquisition. An evaluation of post-acquisition market share, complementary product and service portfolios, cost reduction and synergy opportunities, business unit turnaround needs, and cultural fit are critical elements that help zero in on the right market segments and target candidates. Most important, we always maintain a degree of flexibility from deal to deal, since criteria in one industry may not apply in another.

  • Target selection

    • The target selection process needs to be done rapidly and the criteria explicit and transparent. If the criteria are consistent with the strategic objectives established up front, the right candidates emerge easily and quickly. Analytical rigor is combined with industry insights. For most selection processes, industry knowledge is more valuable than any quantitative metric. An attractive ROI on paper can mean little if the target will require significant turnaround efforts that will stretch internal resources or pose a threat to the cultural identity of the combined organization.

  • Synergies and value creation

    • Accurately estimating the financial and strategic value that can be extracted from an acquisition is typically the most critical factor in justifying an investment. Analysts and private investors will evaluate the success of the acquisition based on the ability to capture synergies in the first two years after the close. This requirement for early improvements requires a much deeper level of analysis than a high level financial evaluation; it requires the development of strategic, as well as operational and functional improvement plans that can be implemented quickly to sustain the valuation of the merged entity.

chess-720x340Even if a company draws up a fantastic M&A strategy, the enterprise value of the company will not improve unless the strategy is carried out. The company can only execute its M&A strategy when the opportunity for an actual deal has been created. And to turn an opportunity into an actual deal, a company must have highly accurate information and strategically conceived approaches. Virtue Intelligence has gained the know-how and resources to originate transactions based in its in-depth knowledge of companies, including knowledge of their recent moves, strategies, historical backgrounds, and even the personalities of the top executives who run them. We have contacts with a wide range of companies, from hundreds of Small and Medium Entrepreneurs Union to major corporations in both Europe and abroad. As we try to understand the everyday moves of our clients, we compile information on deal opportunities. With the vast amounts of information it has accumulated as an M&A boutique, we assist in the planning of highly rational strategies for approaching targets and originating optimal transactions for our clients.

PuzzelDeal-making is hard, but integration is even harder. If you’re not careful it can drag on for months after the transaction closes. Capturing the value of the deal is a balancing act that requires close attention to management, employees, customers, and shareholders. Companies continue to stumble in three broad areas of post-merger integration: 

    • Missed targets

Companies fail to define clearly and succinctly the deal’s primary sources of value and its key risks, so they don’t set clear priorities for integration. Some acquirers seem to expect the target company’s people to integrate themselves. Others do have an integration program office, but they don’t get it up and running until the deal closes. Still others mismanage the transition to line management when the integration is supposedly complete, or fail to embed the synergy targets in the business unit’s budget. All these difficulties are likely to lead to missed targets-or an inability to determine whether the targets have been hit or not.

    • Loss of key people

Many companies wait too long to put new organizational structures and leadership in place; in the meantime, talented executives leave for greener pastures. Companies also may fail to address cultural matters-the “soft” issues that often determine how people feel about the new environment. Again, talented people drift away.

  • Poor performance in the base business

In some cases, integration soaks up too much energy and attention or simply drags on too long, distracting managers from the core business. In others, uncoordinated actions or poorly managed systems migrations lead to active interference with the base business-for example, multiple (and contradictory) communications with customers. Competitors take advantage of such confusion.

Successful integration –the key to avoiding the risks of a merger or acquisition and to realizing its potential value– is always a challenge. And it is complicated by the simple fact that no two deals should be integrated in the same way, with the same priorities, or under exactly the same timetable. But 10 essential guidelines can make the task far more manageable and lead to the right outcomes:

  • Follow the money
  • Tailor your actions to the nature of the deal
  • Resolve the power and people issues quickly
  • Start integration when you announce the deal
  • Manage the integration through a “Decision Drumbeat”
  • Handpick the leaders of the integration team
  • Commit to one culture
  • Win hearts and minds
  • Maintain momentum in the base business of both companies-and monitor their performance closely
  • Invest to build a repeatable integration model

SONY DSCChina has been a net capital exporter for three years in a row. Analysis of M&A deal activity shows that the transaction value of outbound deals has been rising by 22% annually since 2009, reaching $79 billion in 2014. Today’s deals cover an expanding number of industries in all regions. Although private enterprises represent a growing share of outbound activity, the largest deals still involve state-owned enterprises. In the past, outbound deals were made primarily with the purpose of obtaining natural resources or raw materials. Today, they’re just as likely to be aimed at helping companies train and develop staff, or giving companies access to overseas revenues and profit pools they’ve not yet addressed.

Many Chinese acquirers are new to this game. As they turn to outbound M&A, they need to learn some fundamental rules to avoid common missteps. When outbound deals fail to deliver, acquirers typically stumble over three hurdles.

  • They may overlook the importance of scenario analysis and may be ill-prepared for unexpected macroeconomic risks such as currency fluctuations or commodity price cycles.
  • They may shortcut the due diligence process. The nagging reality is that Chinese buyers tend to undervalue the importance of diligence. We’ve seen companies devote only a single month to diligence, relying primarily on internal staff who are experienced only in the Chinese market.
  • Many Chinese companies struggle with two critical areas of merger integration: culture and governance. For example, it is not unusual for Chinese acquirers to instinctively leave intact a foreign company’s leadership team without exploring the options. That may have been the right move when acquiring a natural resource asset, but when the goal is generating synergies, it could backfire.

Based on our work helping Chinese companies develop their approaches to M&A, we have identified five important rules for success.

  • Make M&A an extension of your growth strategy worldwide
  • Clarify how each deal creates value
  • Perform rigorous due diligence
  • Know what you really need to integrate
  • Mobilize in a focused manner