Importance of Value Drivers in M&A Transaction

Importance of Value Drivers in M&A Transaction

There are many things that organizations think about while getting into an M&A process. But one of the most promising factors is the value drivers of the target company. What are the key elements that process the value in the company that it is worth time, money, and efforts? This question might have across multiple dimension answer such as the employees, sales team or integration, consolidation, assets, IP, etc. Value drivers are the key reason to buy a company as it is the key to success for the target company. People give more importance to synergies but the value that you are willing to pay or what worth is the company enables them to get synergies. However, it completely depends on the strategic intent of the acquirer to prioritize things during their due diligence process.

Time and time again, it is being said that the companies should have subject matter experts on board for M&A transactions. The same goes right to finding the value drivers. Subject matter experts differentiate the process from being a mere buy-sell deal into M&A transactions. They identify not only the sources that might have value but also has a plan on how to execute it. Sometimes the company is reluctant to have larger teams on board for the transactions but it is completely fine until the confidentiality is maintained.  

Different value driver frameworks can be implemented. Experts say that it might depend on art and sciences. Art is that you have a theory on how to extract value and where the sources are and sciences talk about the process for a successful outcome. However, the best framework suggested is doing the homework before the deal. Also, the experience, if you have any, is the best possible framework. Although all deals aren’t the same it surely helps with the basic dos and don’ts. Build your templates and research. The more knowledge and research you have on your hand it makes it easier for you to proceed with the deal.

Sometimes the experience or knowledge in-hand makes the acquirer too ambitious. They start expecting things that are next to impossible. There are two ways either going for full potential or starting small and work your way up. Although the buyer tends to go for the first option it is always advised to go for the second one. Start with what needs immediate attention and then on the complex issues. Set your priorities.  

Coming back to value drivers, everything centers on it in the value integration process. Governance of the value drivers sets the tone for success. Usually, the team and the company tend to either avoid or eliminate risks and mistakes but aren’t successful all the time. Hence, the governance system for value drivers is important. There are integration management offices that take ownership of executing the business being the partners with the sellers which is considered one of the most helpful ways. But it is not the only time to look for value drivers. Sometimes even post-close, the companies discover new value drivers. Governance starts with holding people accountable for their metrics.

The common mistake that companies tend to make is that they sometimes don’t follow the process in the right manner. It is the responsibility of the integration management team to take the process the way it should go.

Concluding to the topic, M&A deals somewhere rotates around the value drivers that can to the employees, product, sales, or anything that promises the company’s growth in the current and future market. Missing out on identifying these value drivers can cost a lot to the acquirers. The job is not just after identifying but it is a start. To evaluate it and enhance them, the post-close of the deal is equally a task. Hence it is advised to keep experts on board and take small and steady steps.