MA Strategy

M&A Strategy

Acquirer's M&A Strategy

The company's management must determine its acquisition strategy, which needs to be part of the broader strategy discussions of the company. Such strategy typically considers the following topics, each one of them discussed in previous chapters of this book, or in this chapter: horizontal (purchasing companies operating in the same industry) versus vertical (purchasing companies with an intimate supplier-buyer relationship) acquisitions; acquisitions for the purpose of cooperating in production or management procedures versus acquisitions which do not utilize joint resources; and acquisitions of competitors versus cooperation with competitors.

Once the acquisition strategy is developed, the company builds a mechanism for screening acquisition or merger candidates. Such a mechanism may be based on a continuous examination of potential companies or, alternatively, on an examination of candidates which approach the company. Either way, management must understand the advantages and disadvantages of each company considered for an acquisition or a merger. For example, it must assess, as objectively as possible, what human and economic resources are available to the target, and its situation in areas such as business development, marketing, production, research, and finance.

Another area which management or the team responsible for acquisitions must examine is the company's organizational culture, in order to assess whether the candidate is suitable to their company from the organizational perspective. While many mergers and acquisitions are promising where cost-savings and operating synergies are concerned, lack of human compatibility between the acquirer and the target, and in particular lack of strategic fit between the companies' corporate culture is the major driver of M&As failure. Sadly though, an in-depth analysis of these issues is all too often neglected in negotiations.

Social compatibility between companies refers to the aggregate values and beliefs held by the companies' managers and employees as expressed in the daily activities of the employees and in the companies' strategic activities. For instance, following many mergers, it is found that the sales tactics of the companies' employees are incompatible, so that a merging of marketing forces will create a behavioral incongruity among the sales personnel, which naturally constitute one of the company's showcases vis-à-vis potential customers. Companies which have established a long-standing M&A reputation for themselves, such as Cisco, are known for the great importance which they attach to such managerial-cultural compatibility, so their M&A personnel emphasize this issue in all negotiations.

Finally, as mentioned in previous sections, in any examination of an acquisition, the acquirer must consider both the direct cost of the acquisition (the price paid) and its indirect cost (the effect on the competition in the market) and compare it to the cost of in-house development while taking into account the risk that a competitor will acquire the company in question. The direct acquisition cost is often high, but in-house development could cost time, resources, and the loss of a possible competitive edge.

Target's M&A Strategy

Similarly to the acquirer's M&A strategizing, if a company prefers to have another company buy it, it may choose to actively seek out an acquirer, or opt for cooperative alliances which could lead to an acquisition as discussed in previous chapters of this book. The choice between a sale strategy and continuing the independent development of the company naturally depends on the type of the company, its stage of development, the nature of its investors, and the characteristics of its entrepreneurs. The existence of potential buyers in the market must be addressed as early as possible in the company's initial business planning, as mentioned in the section in Chapter 3 on market analysis and strategic planning, since the company may choose different development paths based on such potential buyers. For example, the company may choose to emphasize efforts in R&D rather than in business development and/or sales and marketing, as those could be better handled by the acquirer. Finally, when making and implementing a sale decision, it is customary to use advisors who are experts on this topic, as specified in the next section.