Acquisition Strategy and Due Diligence
Common sense, uncommon results
One smart way to grow is to uncover gaps in the marketplace and then fill them, either by building internal capabilities or by acquiring other companies. So why is it that so many executives sidestep strategy and jump straight into negotiating deals? By default, they become reactive buyers, competing in auctions that bring on a frenzy of due diligence activity, which can be time-consuming and expensive. If they close the deal, their acquisition may add value to the combined organization – but the odds are against it. There is a better approach.
Deloitte is the among the only professional services firm with the experience and knowledge needed to advise both strategic buyers and private equity investors throughout the entire M&A lifecycle – from crafting executable growth strategies to driving post-merger integration to achieve strategic outcomes. We combine our deep industry skills and extensive M&A experience to inform our clients’ strategies and deliver value. We guide organizations through both local and cross-border deals with an understanding of local cultures and business environments. And our multi-functional teams offer a broad range of tax, accounting, consulting and advisory services covering more than 20 industry sectors. Learn more about the offering.
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The uncommon acquirer
In our experience, effective acquirers adopt a more disciplined acquisition process. They start by taking a close look at their business portfolios to identify and prioritize pockets of opportunity. They define a set process for evaluating prospective acquisition targets that will address deficiencies in their capabilities or provide access to markets. Then they begin the hard work of exploring the universe of possible companies to acquire, which can range from a handful of prospects in a consolidated industry to thousands in a fragmented one.
That’s just the beginning. When a worthy target is identified and engaged in discussions, the prepared acquirer goes beyond financial due diligence to examine the target’s future business potential through strategic due diligence. Are the revenue projections realistic? What capital investments will be required? Do the synergy projections make sense? What’s the real value of the deal? Knowing the right questions to ask – and where to find the answers – is critical.
How We Can Help
Deloitte is among the only professional services firms with the experience and knowledge needed to advise both strategic buyers and private equity investors throughout the entire M&A lifecycle – from crafting executable growth strategies to driving post-merger integration to achieve strategic outcomes. We combine our deep industry skills and extensive M&A experience to inform our clients’ strategies and deliver value. We guide organizations through both local and cross-border deals with an understanding of local cultures and business environments. And our multi-functional teams offer a broad range of tax, accounting, consulting and advisory services covering more than 20 industry sectors.
The services we offer our clients early in the M&A lifecycle include:
Acquisition strategy development. Is your goal to build out existing capabilities, fill gaps, diversify risk, or expand into new markets? Is an acquisition the most efficient route or would investing in internal capabilities provide a higher return? We help clients make tough choices, grounded in a sound overall growth strategy – starting by analyzing the company’s market, competitors, pricing and service offerings. Then we look beyond the organization, talking with customers, analysts, industry specialists and even potential competitors to find hidden growth opportunities. And we develop future scenario models, anticipating competitive and market shifts, to develop a flexible strategy that will help you manage change and uncertainty.
Target identification, screening and engagement. When a growth strategy calls for acquisitions, we explore the universe of potential targets and screen them against your selection criteria. Then we prioritize the targets that are worthy of deeper consideration and develop scenario based acquisition pathways to achieve your strategic objectives. We also work with you to develop a strategy to engage the targets’ executives in productive discussions and to anticipate and address competitive responses. Our goal is to be sufficiently thorough that an investment banker would be challenged to bring you a potential deal you haven’t already considered.
Strategic due diligence investigation. While financial due diligence looks back in time to understand the target’s financial reports, it’s equally important to validate the target’s potential future contributions through strategic due diligence. We examine target value on a stand-alone basis, examining its markets and customers to evaluate the associated opportunities and risks. Additionally, we assess the potential value of the combination – diving deep into areas including sales/marketing, R&D, finance, human resources and information technology. We tap industry specialists, associations, customers and competitors to gain their insights. Our intelligence work can help you set a sound offer price that avoids overpayment or deal-breakdown, and lays the foundation for integration planning and synergy capture.
Effective acquisition strategy and commercial due diligence can help you:
- Develop executable growth strategies that create tangible value
- Make the tough choices required to execute the strategy
- Conduct in-depth analysis to identify legitimate acquisition opportunities
- Assess targets to gain insight needed to inform key decisions, improve pricing accuracy and minimize uncertainty
- Inform high-level financial projections and integration strategies to achieve realistic synergies
Three Ways to Get More Value Now
Understand your specific objectives. Any strategic analysis should start by exploring exactly why you are considering a merger or acquisition. Are you developing a purely defensive plan or are you trying to reach specific growth objectives? Would an investment in building internal capabilities be a more effective use of capital?
Remember that alignment is key. An M&A strategy must align with the overall business strategy. It’s just one piece of the broader corporate growth strategy.
Avoid over-reaching. Even the best ideas can unravel if they are contingent on resources or capabilities your company does not possess. This doesn’t mean that stretch goals are inappropriate, but a potential acquirer should establish objectives that are attainable given realistic operational constraints, such as limited geographic reach, lack of in-house resources or minimal M&A knowledge and experience.
Acquisition Strategy and Due Diligence in Action
- An acquisition strategy helped a division of a global pharmaceutical company build its product portfolio. We explored their universe of care pathways to identify more than 300 potential targets. Within three months, our client began discussions with the final target company executives.
- A global biotech powerhouse emerged when our client acquired a much larger supplier. We conducted pre-deal strategy validation and due diligence and followed through with global post-merger integration support. Nearly $200 million in annual synergies were required to rationalize the deal; actual first-year results were nearly double the target.
- A global industrial products company was looking to double the size of its fastest growing division. Deloitte helped evaluate the market space to examine high growth customer segments, product segments and geographies to develop an M&A strategy with a two year acquisition pathway.
As used in this document, ‘Deloitte’ means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.