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Thinking differently about M&A


The Covid period has put pressure on many markets and brand budgets, but this has created a new momentum across the agency sector. But are you going to take advantage of the broader opportunities that acquisition, sale or merger could bring? Or are you going to miss out because you have your head down, or because you’re not properly prepared for the new way M&A works?

FOCUS ON REALISING YOUR AMBITION

With so many changes over the last 18 months, it’s recently been the right time for leaders to take a look into the future and reconsider their business vision, strategy, resources, and action plans.

But it’s not just at a corporate level that things have been re-evaluated. Leaders are thinking more about their own lives, what they want to achieve and how they want to spend their time. Many talented individuals now want to make fewer compromises. They want to spend more time doing what they do best, move faster and avoid years of toil and unfulfilled potential.

So, with a fresh look at business strategy and re-focused personal perspectives, the world of M&A can now provide smarter and quicker ways for businesses and their stakeholders to achieve their ambitions. Traditional views have changed. It’s no longer only big groups and networks that acquire businesses. And a sale doesn’t need to be an exit or an ‘end game’. They can be seen as ways of getting ahead, of achieving scale, of delivering strategy, of enabling business and people to move forward. A stepping stone – not just a corporate ‘transaction’.

And that’s why M&A activity has been accelerating and valuations have been strong. But that doesn’t mean deals are easy to do. The expectations and standards have changed and if you want to succeed via these routes, you’ll need to understand the new requirements.

A NEW HONESTY

If many acquisitions or sales are going to be a means to an end, rather than just an end in themselves, a different tone and depth of discussion will be required and different issues will affect the relationship between buyer and seller.

Any seller who thinks that it only takes a couple of years of good numbers to realise value, will always have been disappointed. But things have moved on further. Buyers are sharper and they have a clearer view of what they want to achieve beyond the financials. And with sellers looking more frequently at only a partial sale, or taking their consideration in the acquiror’s equity, there needs to be a new openness and honesty to create a strong basis for enduring, mutually beneficial relationships.

In the past, a merger has just been seen as a cosmetic word used to sell in an acquisition to sensitive stakeholders. But in this new world, where realism is more prevalent and egos much reduced, genuine partnerships can be a powerful tool for many businesses.

BE PREPARED AND BE ATTRACTIVE

A sale in the current market can certainly realise significant value or create access to capital, know-how or new markets. There are buyers in the marketplace with plenty of money to spend, they just may not be the ones you expect. And remember, the best buyers are only focused on the very best businesses. Just because your sector is hot at the moment, it doesn’t mean your business will be in demand.

Valuations are likely to be at a good level and, of course, this is good news for sellers, but the evaluation criteria used by acquirers have broadened and deepened. Scrutiny is now at a much higher level. Not just on the ability to grow and generate increased profits, but on being able to continually innovate, optimise returns and fend off challenges. Technology and IP will really count, but so too will purpose, culture and employee commitment. And leadership teams will be looked at even more closely.

As a seller you’ll also need to think carefully about future roles, remuneration and contractual restrictions. Your view of how things will work in the future may differ significantly from those of potential new owners.

Attracting the acquiror you want, on the terms you want, will require preparation and commitment, long before you start engaging and negotiating with potential partners.

THE GAME HAS CHANGED FOR BUYING TOO

You may have funds and be looking to grow, but there is tough competition out there for the best deals. With so many fundamental market changes, buyers will need to be crystal clear on their own strategy in order to identify the most beneficial acquisition targets.

And then, how should the recent Covid disruptions be assessed? Growth and profit records may have been distorted, customers and staff commitment challenged and leadership teams tested. It's now much harder to identify the future winners - and losers. Many pre-Covid stars will only fade in the future and many well-led businesses will have discovered their magic during recent times.

Pricing is also more complicated today. But whatever the price, it’s about the value that the acquiror can create after the transaction. So, there is even greater need to understand markets and anticipate future changes.

There will be good opportunities for value creation and leaders should not be put off M&A activity. But as well as finding the right targets, buyers will also have to look carefully at their own positioning, culture and management style to ensure they are an attractive destination for the discerning seller.

BE BOLD AND BE AWARE

So, with the sector being buoyant and in demand, leaders should certainly view M&A activity as a valid tool to help fulfil their ambitions. But you’ll need a clear ambition, a sharp strategy and strong management. And those of you who want to seize these opportunities will need to think differently and embrace the new requirements of M&A.

First appeared in PerformanceIN on 1 June 2021

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