In addition to realising strategic (growth) goals through purely organic activities, it can, depending on the situation, make sense for companies to expand in an inorganic fashion through targeted mergers & acquisitions (M&A). The objectives for business mergers and takeovers are diverse, typically including strategic aspects (e.g. improved/new access to customers, the protection or supplementation of critical value creation stages) and the expansion of entire product and service areas. On top of these strategic motives, a frequent reason for M&A activity is the associated speed with which – in comparison to the much slower organic processes – know-how and associated resources can be bought. In the fields of e-commerce and digitalisation, especially, this aspect is a frequent driver for M&A deals. In light of this, it might, for example, make sense for a hitherto solely brick-and-mortar brand manufacturer to acquire a B2C online pure player, with all the associated e-commerce know-how. Depending on the previous focus of the brand manufacturer, this can not only result in rapid access to e-commerce knowledge, but also in verticalisation with access to end consumers. It goes without saying that the respective opportunities and risks (for example, channel conflicts with the existing brick-and-mortar business) must be carefully examined and weighed up in individual cases. Accordingly, the study of potential M&A activities follows a proven (simplified) process consisting of six core phases (see Figure 1):
Figure 1: Overview of a simplified M & A process made up of six core phases
The initial phase focuses on the definition of the strategic objective. Here, it makes sense to precisely specify the objective of the inorganic growth initiative by ascertaining the expected revenue contribution, product areas and customer segments of interest, geographical target regions, etc. The investment framework can then be determined – that is, precise specifications on financial criteria such as minimum margins, cash flow amounts, available investment volume, etc. can be identified. These are then be linked with the strategic aspects defined in the previous step. Once these two foundation phases have been completed, a systematic screening of potential targets can be carried out in accordance with the specified framework conditions (strategy & finances), resulting in a longlist with relevant targets. In phase four, this longlist is compressed to a shortlist and the remaining targets evaluated by means of a value creation calculation that takes into account synergies and risk-return profiles. What comes next is the planning and structuring of the transaction, including the carrying out of due diligence, comprehensive coordination of the negotiations and the establishment of a project management office (PMO) for thorough monitoring. The focus of the final six months is post-merger integration (PMI) & synergy management – that is, systematic management of integration including progress tracking and monitoring of synergy realisation between the target and the existing business.
FOSTEC & Company will be happy to assist you in developing your M&A strategy. Thanks to our consulting activities and broad network, we not only possess a good feel for relevant inorganic growth options in the areas of e-commerce and digitalisation, but can often also initiate contact with relevant targets.
For more information, please don’t hesitate to get in touch!
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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.Learn more