Shape the M&A strategy and identify the deal
Understanding the M&A lifecycle
Closing the deal - getting signatures on the dotted line - is often celebrated as the defining milestone in an acquisition. It is the result of months of effort, and for good reason: it is a moment worthy of recognition. But this is merely one step in a bigger scheme: the M&A lifecycle. A successful acquisition hinges on the many steps and decisions made both before and after signing. This article is all about the first step: shaping the M&A strategy and identifying the deal.
Highlights
- As the TMT landscape keeps changing and the industry keeps evolving, so does your company and your corporate strategy. Acquiring a technology company can pave the way for profitable growth and define the source of your future revenues. In telecom, M&A could be a tool to better allocate your resources and optimise financing (e.g., Netco ServCo splits). In the media sector, consolidation can contribute to a more internationally competitive business. Before setting your sights on a target, it is essential to pinpoint any gaps between your current and desired strategy.
- Deciding to acquire a TMT company is only the beginning. The next challenge lies in identifying the right target. While strategic and operational fit are critical, other factors must also be considered. For instance, the ‘cultural fit’ and regulatory approval.
- Pricing is crucial alongside identifying the right M&A target. Assessing whether the current owners are open to a transaction and whether their expectations are realistic is vital.
- Successful acquisitions rely on trust and alignment, not just on financial offers. The buyer positioning should highlight mutual benefits and shared values, and alignment of the target with the buyer’s vision.
- TMT-companies, such as those in cybersecurity, may fear losing their independence within a corporate structure. Corporates must position the TMT company as integral to their strategy, while private equity firms should emphasise an attractive growth path (e.g., a buy-and-build platform for future acquisitions, or organic growth) with value beyond the acquisition.
Mergers & Acquisitions
Identify the Right Deal. Either through active selection of companies or business units, or by reacting to offers in the market (one-on-one or by auction). This phase involves setting corporate strategy, identifying growth areas or selling non-core activities.
Pricing and offer. Initial pricing of a company and assessing how easy or difficult integration or separation is going to be, as well as which legal and tax structure will be most suitable (and its impact on pricing).
Perform due diligence. What do we buy? It is crucial to assess the real value of the company, the presence of ‘skeletons in the closet’, financial aspects such as balance and cash flow as well as non-financial analyses (e.g. company culture, integrity, operational synergy benefits, and operational analysis of real estate).
Execution. After the due diligence phase, a Sales and Purchase Agreement is drafted, the relevant authorities are informed and consulted, and the ‘closing’ procedures are executed.
Deliver the Promised Returns. After the transaction has been completed, the expected results must be achieved – how to realise synergies and to prevent that in a future strategic re-assessment the new business will be considered as a non-core activity and be resold (without any added value). And the final step: Post-Merger Integration.
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An evolving TMT landscape
As the TMT landscape keeps changing and the industry keeps evolving, so does your company and your corporate strategy. Success lies in making sound strategic choices - decisions that pave the way for profitable growth and define the source of your future value. In many cases, this will include M&A transactions. Acquiring a technology company can pave the way for profitable growth and define the source of your future revenues. In telecom, M&A could be a tool to better allocate your resources and optimise financing (e.g., Netco ServCo splits). In the media sector, consolidation can contribute to a more internationally competitive business.
Opportunities for growth
When shaping a merger and acquisition (M&A) strategy, it is vital to begin by analysing the evolving dynamics of your industry and evaluating opportunities for growth. This process could involve entering new geographic markets, offering new products or services, or acquiring specific capabilities to strengthen your portfolio and business in general. Whether you aim to move into adjacent markets or take a leap into an entirely new area, these strategic decisions will ultimately guide your M&A agenda and screening criteria.
The desired strategy
Before setting your sights on a target, it is essential to pinpoint any gaps between your current and desired strategy. For instance, if expanding into Germany is your goal, organic growth may prove challenging if dominant players are already established in the market. Acquiring one of these key players may be the solution - a decision driven by strategic alignment. Your screening criteria, such as company size and market position, will stem directly from these strategic considerations.
M&A strategies: the Strategic Choice Cascade
Deloitte has designed a framework that can help companies articulate a new combination of M&A strategies to fortify their gains, accelerate business model transformation, and make horizon investments to capture lasting market leadership. Using the Strategic Choice Cascade as a guide, we can help teams discuss, evaluate, and align around the choices that matter most. The framework includes defensive and offensive M&A strategies – to preserve value (defence) and to drive transformative growth (offence).
Defensive M&A strategy
Every company, whether large or small, will need to firmly establish resilience at the heart of its business model and organisational culture. The following defensive plays will materialise in three different ways:
- Accelerate synergy realisation and deliver value.
- Optimise the portfolio.
- Explore opportunistic deals to safeguard supply chains and competitive positioning.
Offensive M&A strategy
In order to prepare for future growth and lay the groundwork to capture market leadership, bold moves (involving transformative acquisitions, ecosystem alliances and disruptive investments) are required. The following offensive plays will materialise in four different ways:
- Capture the digital future.
- Identify portfolio gaps and expand the value chain.
- ESG – delivering returns with purpose.
- Collaboration as a competitive advantage.
Monitoring market trends
By ensuring clarity in your strategy, you maximise your chances of identifying opportunities that deliver long-term success and value creation, and you are better prepared if a target comes to market. For a thorough insight into the latest market developments, we recommend reading our M&A Predictions.
Selecting the right M&A target
Deciding to acquire a (TMT) company is only the beginning. The next challenge lies in identifying the right target. Part of the challenge is that in the TMT market, specifically fast-growing start-ups and scale-ups are abundant. Therefore, it is particularly difficult to develop an accurate insight into potential acquisition candidates. While strategic and operational fit are critical, other factors must also be considered. For instance, the ‘cultural fit’: does the company align with your corporate culture? Second, in the field of synergies: will the transaction generate measurable value? Third: does the company complement your KPIs for growth and profitability?
Regulatory Approval Considerations
When selecting the right M&A target, it is essential to consider compliance with (international) laws and regulations. Not all acquisitions are permitted, as some legislation is specifically designed to safeguard valuable technologies from moving to other countries. In sectors such as media, mergers and acquisitions may be restricted to prevent market dominance by a single party (antitrust concerns). For instance, the Telecom and Media sectors in the Netherlands are highly consolidated. Regulatory dynamics are also relevant for the technology sector (e.g., semiconductors). Depending on the transaction, these regulatory considerations can be addressed early in the acquisition process to avoid hurdles and ensure a smooth trajectory towards a successful deal.
Getting the price right
Beyond identifying the right target, pricing is equally important. Are the current owners open to a transaction? Are their expectations for the sale realistic? In some cases, where expectations are high, patience may be key in negotiating a fair price.
Positioning as an attractive buyer
Convincing company owners that you’re the right buyer goes beyond financial offers - it requires trust and alignment. Target companies, e.g., in cybersecurity, often fear losing autonomy or innovation after joining a large corporate structure. This means that buyers must present a compelling story. For instance, corporates need to demonstrate to targets that they are a logical fit to the overall growth (and strategy). This will translate into mutual benefits and shared values going forward. Private equity firms should emphasise an attractive growth path (e.g., a buy-and-build platform for future acquisitions, or organic growth) with value beyond the acquisition.
The M&A cycle in a nutshell
Viewing an acquisition as a series of interconnected phases rather than a one-off transaction is key. From identifying the right deal to integrating the new business into your company. Each decision you make along the way shapes the outcome. Below we have embedded a picture of the M&A lifecycle and a short description of each phase. In a series of articles we delve into each step of the M&A lifecycle, sharing stories and thoughts about each of these phases.
How Deloitte helps TMT companies
Deloitte helps companies develop acquisition strategies and position themselves as an attractive buyer, supported by intuitive frameworks and proprietary analysis. Using the Strategic Choice Cascade as a guide, we help teams discuss, evaluate, and align around the choices that matter most.
Would you like to learn more? Get in touch with us using the contact details below.
