Mergers and acquisitions represent a crucial opportunity for companies to generate growth, enhance capabilities, or reduce costs. But they also offer a chance for transformational change, changing business models, workflows, and workplace cultures.
But how can managers and boards make these deals work for them? Research shows that most mergers and acquisitions fail to create value–destroying shareholder value and costing companies billions of dollars.
Identifying and Defining the Value Drivers
Before closing a merger or acquisition, you must establish and communicate your key value drivers. These will serve as a north star for the integration process and guide you through it with clarity, discipline, and empathy.
The M&A consulting process can be daunting, with many stakeholders involved. You may have to select your targets, model businesses in Excel, estimate the potential benefits of a merger or acquisition, and forecast the development of your acquired companies.
Intuitive Edge provides M&A Consulting to help clients identify and assess target opportunities, develop guidelines for screening prospects, and evaluate their alignment with your company’s objectives and vision. They also support the setup of a joint venture or alliance.
Developing a Value Projection
Developing a value projection is one of the most crucial steps in consulting. It allows you to assess a business’s future value and decide whether to pursue a deal.
A good value projection is based on past financial performance. It can include at least three years of financial statements and tax returns.
It also includes projections for future years. It can help you determine whether to invest in a new product line or expand into a new market.
Despite the importance of developing a value projection, many managers need help correctly using management forecasts and projections. Many recent court decisions involve a debate around these issues.
Developing a Value Creation Strategy
Value creation is a critical component of a business’s growth and sustainability. It entails developing goods and services that are more beneficial to consumers than those they now use, which boosts sales of such goods.
It is a long-term process that helps companies maintain industry leadership and build trust with their consumers. It also provides a foundation for determining the company’s worth to investors.
The value creation strategy should be based on the goals of shareholders, owners, and other stakeholders. Understanding these groups’ interests and motivating them to work together can help companies make trade-offs that create sustained, value-oriented outcomes.
Developing a value creation strategy requires identifying the company’s value drivers, determining the right opportunities for value creation, and putting it into action. It requires robust processes, a streamlined operational structure, and strong team of management and leadership teams.
Developing a Value Creation Plan
Developing a value creation plan ensures that business strategies align with broader objectives. It includes maximizing the value for all stakeholders, which include customers, investors, and employees.
To develop the plan, identify the business’s key value drivers. They must be clever (specific, measurable, achievable, realistic, and timely).
Then create objectives and initiatives that support these values drivers. These can be based on the values drivers themselves or on a broader vision for the future.
The next step is to link the value drivers, objectives, and actions together in a clear format that can be shared across the organization. It will enable everyone to know what is needed when it is required and where they are accountable. It will also help them to see how their roles are connected to achieving the overall objectives of the value creation plan. It will help them make the best decisions for the business and improve their performance.