Modern M&A and the deal value constant
Contemporary M&A inhabits a rapidly changing world with and without COVID-19. The speed and complexity of these changes reverberate through the ever-changing character of M&A’s subject matter - in modern business strategies, in innovative technologies, in discerning customer demands and in ever-increasing shareholder expectations. However, one constant remains; M&A’s insatiable demand for deal value creation and capture.
Deal value preservation vs. Deal value generation
Given the pedestal on which deal value sits, it is ironic that very few organisations attempt to generate value until day 1 of a deal, by which time it is often too late. Too often, entities focus on value preservation activities at the expense of value generation activities. This is animated by many pre-deal activities but perhaps most colourfully by legal and financial due diligence exercises, which primarily seek to preserve present value or prevent future value loss, rather than generate additional value.
Value preservation is of course vital, but we think that deal value creation and capture require a more holistic approach; an approach which can effectively intertwine both value preservation and value generation activities throughout the entire deal cycle, from target analysis to pre-deal due diligence, right though Day 1 into post deal integration and beyond. This holistic approach needs to include focusing on technology.
Resilient deals drive deal value
At Waterstons, we call this holistic approach ‘building a resilient deal’ which is premised on our neoteric interpretation of resilience, which we have developed as a quadrant around the four canons of protection, adaptability, optimisation and innovation, as seen in the image below.
Traditional value preservation activities such as legal and financial due diligence fall squarely within the bottom two sectors of the quadrant of ‘Protect’ (doing the basics right, complying with legislation etc) and ‘Adapt’ (responding to challenges revealed during the due diligence). These are of course vital but, by considering them in a vacuum, you primarily protect the current value of a business without a focus on generating any additional value, as you are only considering the business as it is, not what it could be. This makes it difficult to deliver real benefits unless you have paid less than the intrinsic value of the business to begin with.
A holistic, resilient approach to value creation and capture will display attributes of all four sections of the quadrant. The more resilient a deal is, the more value you will derive from it; by being adaptable to prevailing circumstances, challenges and opportunities; protecting current value; optimising current ways of generating value and implementing innovative ways of generating additional value.
What you get by focusing on technology
In one way or another, modern businesses are heavily dependent on technology. There isn’t a business today which doesn’t rely on technology in some form for its business operations, financial reporting, customer services, marketing, or human resource management.
By focusing on technology as soon and as often as possible, you create the foundation to identify what needs protecting, but you are also able to recognise what or how you need to adapt, what you can optimise, and where you can innovate in order to generate additional value.
From this resilient foundation, if you have the right people in place, who are able to envisage what the future business needs to look like and how technology will facilitate that future state, you begin to generate and capture tangible value pre, peri and post deal.