The Art of Defensive and Offensive Merger Prep

As with most other business scenarios, M&A negotiations often force a company to take a defensive or offensive position on M&A due to timing and company priorities. Many organizations are reactive (though they prefer the term opportunistic) and force their organization into a defensive position at the mere rumor of a consolidation. Other organizations recognize that business consolidations are part of their growth strategy and therefore invest more in planning in order to ensure a degree of readiness. The more proactive an organization is in their targeting and internal readiness, the more that effort and resulting assets can be turned into an offensive strategy. The executive team will build off your preparation and confidence. If you are well prepared, they are more likely to be aggressive.

Though some companies are truly proactive in their preparation, most start small and tactically. This approach is preferred because large conceptual efforts risk processes and estimates that are not as effective or realistic as they could be while smaller efforts create a strong base from which to build

Consider M&A from a defensive perspective for just a moment. If you doubled your business volume, what would break? Where would service levels suffer? Where would employee morale and productivity drop? Where would regulators appear? How would you supply chain respond?

Thoroughly answering such questions builds readiness and should be prioritized. As mentioned in the first blog of this series, M&A scenarios can easily be developed to guide planning and define assumptions. In addition to developing your own readiness, exploring these scenarios can be an effective team building exercise as multiple teams will be required to pull together to prepare.

When creating scenarios, consider adding restrictive assumptions that make the scenario even tougher. For one client for whom we developed a series of scenarios, we added the assumption that although business volumes would grow, our current expense budgets could only grow marginally. As you can imagine, this was not a fun exercise to facilitate but we developed ideas on how to handle the scenario and increase efficiency.

Often, the outcome of these exercises is a form of automation around back-office operations, IT infrastructure, security, accounting, cash management, facilities, and controls. At some point during the exercises, it becomes apparent that IT capacity is also a constraint, prompting the teams to assess the core process designs, forms, reports, team structures and locations, incentive plans, and risk management activities.

After conducting these exercises, the scenarios should be reviewed with executive management to socialize the plans and provide credibility and a platform for sponsoring additional ideas.

When helping our client to develop planning frameworks, we often see that their teams begin to mature and become more creative and proactive. Increasingly, partners from across the company, such as IT, operations and compliance will also become engaged. As the engagement grows, you can begin feel an attitude for offense develop.

Another strategy to develop your plan and increase your offensive posture is to create portfolio views of new ideas, taking into account lead time, cost, complexity and risk so efforts can be prioritized. Although this is an important task for identifying great ideas, be prepared for inevitable "pet" projects which will surface when teams see an opportunity for "free" funding. These subjective "pet" projects should be battled with an objective portfolio approach that people respect throughout the organization.

As companies and their employees develop M&A maturity, they begin to adopt more offensive strategies. The prevailing attitude becomes how they can beat competitors to key targets in order to accelerate returns. Key considerations in executing an offensive strategy include where your company has the capacity to can move faster than the competitors, where investment can be made in order to establish a competitive advantage with little consequence to current business plans, and how to gain the edge if locked in a bidding war.

This offensive exercise is typically tougher because it is less objective unless you plan for specific targets. An offensive strategy usually starts with identifying key strengths or excess capacity that could be used to attract and efficiently consolidate a target. In addition to identifying these strengths, you will need to:

  • Assess change absorption capacity to determine teams that could support an acquisition
  • Retain expert project managers to keep the effort focused, the various teams engaged, scope controlled and level of detail managed
  • Establish clear ground rules in terms of scope (products and customer segments included), overriding assumptions, roles and process
  • Review portfolios, plans and assumptions with senior management
  • Sponsor 2-3 new ideas for piloting

Throughout this process, change and communications must be managed. Kicking off this exercise alone will generate rumors so structure, control and phase the work so teams can deliver real results with minimal drama. Understand that the process alone is an asset if it's managed properly. By creating such assets, having solid team work, and sharing goals, your company will be more than prepared to capitalize on such opportunities and you have a better chance to succeed.