Management / Is an M&A really what your business needs?
Is an M&A really what your business needs?
5 January 2018
Companies must be clear on what they need from mergers and acquisitions – and if necessary, be prepared to walk away from them.
The head of M&A at investment bank Panmure Gordon, Karri Vuori, is a bit of a cynic.
He feels that the buying community is panicking and companies are buying growth by rushing to purchase businesses because of the low-growth economic environment.
“Capital is cheaper than we’ve known in our lifetimes, so there is a high temptation to use it, but you need a clear M&A strategy,” says Vuori. “Certain deals have a great rationale but in many cases it is simply about empire-building. These types of deals will fail to generate shareholder value.”
He says buyers must search out deals that offer complementary skillsets or markets, or have obvious business synergies that could save money. This could include the integration of manufacturing facilities, for example.
“Having a robust M&A strategy means you must be brave enough to sometimes walk away and look elsewhere.” – Karri Vuori, Panmure Gordon
“When it comes to devising an M&A strategy a buyer must be clear about what it needs. A deal must be aligned with the business’s goals,” he says. “Perhaps there is a gap in a company’s product or service portfolio, or it might be a market leader in some territories but not in others.”
Vuori adds that one of the biggest strategic mistakes buyers can make is to fall in love with their own deal.
“You see people lose their objectivity despite what the due diligence process might be telling them. They are controlled by their own ego,” he says. “They can feel that their credibility is on the line if they have to make a statement saying a deal is no longer going ahead. Having a robust M&A strategy means you must be brave enough to sometimes walk away and look elsewhere.”
Ross Allardice, a partner at law firm Dechert LLP, expects the focus on “buy and build” strategies to continue and for more buyers to hold on to assets for longer in the hope of seeing more organic growth. “One popular strategy is to seek out less mature businesses that have the opportunity for substantial future growth,” he says. “One of the pitfalls to avoid is overpaying for assets. Valuation multiples are continuing to increase and larger players are beginning to compete strongly in the mid-market space.”