The Desire to Acquire and the Urge to Merge


M&A activity is a crucial ingredient of the business strategy for most companies. This applies both to companies which are growing (e.g. towards more/ new product and/or services, new geographies or a stronger exposure into existing geographies, enhanced capabilities) as well as companies which want to reduce their exposure in certain fields of business. This has become especially true in the last few years and will become even more so in the years ahead the digital revolution (e.g. internet of things, big data, sharing economy, era of mobile communication, etc.) and the complete disruption of traditional value chains eventually in almost all industries (e.g. publishers, banks, book retailers) puts an enormous challenge to CEOs and shareholders to adapt.

In order to get to promising new business lines/ models there are of course different means – besides M&A, mainly corporate incubators and corporate VC – but only very few actual turn out to be successful. The positive impact of both corporate VCs and corporate incubators is fairly limited and rare – likely one of the reasons we hear a lot about new initiatives, but very little about success stories. But in turn, there are of course promising examples: Axel Springer, the large German media group is certainly one of them: Axel Springer is a role model for the successful adoption of digitization in its industry, and M&A activity played a crucial role – both in getting access to new business models, markets and capabilities, and in addressing declining business in need for a solution.

When executed properly, the desire to acquire offers significant advantages to companies and its shareholders. M&A allows companies to gradually or fundamentally alter its traditional business models towards a more sustainable one for the future. It can spur growth and increase the value for the shareholders. It allows gaining access to new opportunities. Ultimately, it can trigger necessary change and may pave the road to survival.

On the flipside, M&A can be harmful to companies if not executed properly. Basically all the above positives may turn against the acquirer. There are numerous examples of acquisitions which at some point in time turn out to be unsuccessful – mainly due to overpayment and failed integration.

The best way to avoid value destroying acquisitions is to focus management attention on selecting the right potential targets and to start early with the preparation of the integration. In order to do that, it is advisable to use capable financial advisors (for both M&A as well as acquisition financing if necessary) with an understanding of the industry and an entrepreneurial mind-set to run the entire M&A/acquisition financing process. The acquirer’s management should use the financial advisor as a sounding board for acquisition ideas and delegate the time-consuming execution of the M&A process to capable advisors. This allows the acquirer’s management to focus on its existing business and devote its attention more towards a thorough preparation of post-merger integration.

Name: Martin Alpermann

Position: VP


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