VALUE CREATION THROUGH MERGERS AND ACQUISITIONS

Executing Mergers & Acquisitions (M&A) is a very significant event for many businesses today, especially in light of rising global competition, expanding industry trends, technology disruption and the need to transition to new business models. Executives recognize that business success is inextricably linked to creating strategies to deal with economic and environmental changes. Many firms have utilized M&As as one of these strategies and a competitive game plan to move forward and achieve top-line growth.

M&A is a popular strategy that achieves considerable success when executed properly. One major goal of implementing this strategy is to create value. Many firms struggle to develop value in M&A deals, resulting in business strategy failure. This article’s purpose is to help executives improve their preparation and processes in creating value as they execute M&A strategies.

 

What is M&A Value Creation

Value creation may imply different things to different people depending on whether they are shareholders, owners, or stakeholders. During the early stages of a firm, an owner may strive to build value for himself by earning returns that exceed his capital expenses and reaching his goal return on investment. As the organization grows, it must also consider the expectations of other stakeholders for value generation. Strategically, the firm seeks to match the value expectations of its consumers, resulting in increased sales of its goods and services.

In new technology-driven companies such as robotics, value creation can be achieved by investing in development and innovation or merging with existing technology firms. Such approaches help businesses to provide their clients with cutting-edge solutions, leading to successful value creation.

Clients in other areas also expect consistent quality services, innovative processes, and an enhanced corporate reputation. Market presence, revenue growth, productivity, and margin stability can also determine the firm’s value. In terms of operations, the firm must also meet the expectations of stakeholders, employees, and the general population. By creating value, the company makes better use of its financial and human capital, resulting in profitable and sustainable growth.

 

4 Efficient Ways to Successful Value Creation through Mergers and Acquisitions (https://swaritadvisors.com/learning/value-creation-through-mergers-and-acquisitions/)

 

1. With a wide selection of targets and effective implementation of acquisitions, one can achieve synergy and create value. The difference in the sizes of an acquiring company and the target company affects value creation. If the target company is much smaller than the acquiring company, it shall not affect value creation. On the other hand, if the target company has the same capabilities as an acquiring company, an opportunity for synergy creation exists. If the difference narrows and value creation increases, integration often becomes a problem. It further leads to value loss, even if the companies involved are of similar size.

 

2. The acquirers need to stay true to the strategic intent. Companies must approach Mergers and Acquisitions deals as part of a clear strategic vision and align it to the business’s long-term objectives. 86% of acquirers said that their latest acquisitions had created a significant value as it was a part of a broader portfolio review than merely an opportunity.

 

3. Companies must have a clear blueprint containing all the elements of the value creation plan. Acquirers should conduct thorough due diligence across all business areas for successful value creation through Mergers and Acquisitions. Consider factors like how each element of the value creation process supports your business model, operating model, technology plans, and synergy delivery. Reportedly, 79% of acquirers did not have an integration strategy in place when signing an M&A deal, while 63% did not have a technology plan.

 

4. Lastly, prioritize and fix cultural differences at the start of a deal. Human capital and talent management majorly influence how companies can deliver value. 82% of companies said a large value was destroyed in their latest acquisition and lost more than 10% of employees after the transaction took place. Businesses should invest more time and resources in the process of M&A transactions to succeed. Over two-thirds of the companies said that their latest M&A deal subsequently created a significant value as they had an integration strategy in place while signing. The acquirer must have an ability to bring different cultures together, which is a key factor in determining the success and failure of the deal.

 

Parting thoughts

As M&A transactions are expected to accelerate due to the reasonably robust economic outlook, investors are once again pushed to carefully consider how they will achieve their growth strategies, particularly through M&A transactions. As they enter the M&A market, it is critical to build a plan that prioritizes value at every step of the transaction and thoroughly considers every possibility. Executives must understand that the production of value is dependent on how the process from merger preparation through post-merger integration is managed. This process entails a solid plan, a comprehensive evaluation of whether the acquisition is worthwhile, and a transparent M&A methodology. They must guarantee that the M&A strategy’s aftermath generates value, that key talents remain engaged in integration, and that a defined strategy results in effective value generation and long-term sustainable performance.

Ready to explore your exit and growth strategy?

If you are a retiring business owner in need of a succession plan, or if your firm needs to develop, grow, and enter new markets then M&A may be the strategy for you. It can be an excellent exit plan and a solid strategy to improve the firm’s overall health, productivity and bottom line. However, you can only reap the total value of M&A if you find the right buyer for your firm.

If you decide to sell your firm or merge with another, HWA Alliance of CPA Firms, Inc. (HWAA) offers business owners convenient, creative and value-maximizing solutions for developing and exiting their firms. Allow HWAA to be the ideal buyer for your firm so that we can help your M&A transaction be a huge success. We have successful M&A experience working across different state lines and different industries. Partner with us, and we can save you time, money and resources by strategically positioning your firm to continue doing business under the umbrella of HWA Alliance. 


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