(Charlotte, NC – June 30, 2017)
Establish a Consistent Acquisition Strategy —
In our last newsletter, we touched on six principles for successful acquisitions. Over the next series of newsletters, we plan to offer additional perspective and support for each principle. Below are additional guidelines to help Corporate Development executives achieve the first principle, “keep principle objectives consistent”.
Know Core Competencies: Before evaluating the merits of a potential acquisition, understand the acquiring company’s core strengths in its respective market, how it competes, and where it falls short. The investment thesis for any potential deal should only improve or expand the core competencies, which should directly correlate to the acquiring company’s overall business strategy (1).
Vary Deal Thesis Accordingly: Developing a deal thesis for a large platform acquisition may be more difficult if it involves expanding beyond the acquiring company’s core business, whereas a bolt-on may have a more conventional rationale (e.g. filling gaps in product offering). While the individual theses may vary, each deal should still contribute to the acquiring company’s overall business strategy (2).
Think Beyond Traditional Objectives: While there is still a case for the standard deal thesis (e.g. expand market share to new geographies, or acquire adjacent product lines), new “currencies” like knowledge, data, and culture are also important to consider. Supplementing a traditional transaction rationale with one that also values people and ideas can enhance the overall business strategy of the acquiring company (3).
Be Prepared to Adapt: Continuously consider the strength of the acquiring company’s core competencies, new opportunities, or potential threats and adapt the acquisition strategy as needed. What worked well for the acquiring company historically, may not carry through to the future.
Learn from Example: Philips successfully completed its transformation into a “focused leader in healthcare” following the 2016 IPO of its lighting business. The company maintained its core competency as an innovative brand in the consumer electronics business and reapplied it to the healthcare industry. Its history of M&A activity throughout the healthcare sector reflects the focused execution of this overall strategy (4).
(1) Bain & Company: Mastering the Merger: ‘Four Critical Decisions that Make or Break the Deal’
(3) Deloitte University Press: ‘Corporate Development Strategy’
(4) Med Device Online: ‘Phillips CEO: Focus on Health Tech Pays off, Despite Uncertainty in U.S.