When the Merger is Complete, Will It Realize its Full Potential?
Acquirers consistently pursue deals that can address their desire to add new capabilities; either to enhance their existing capabilities portfolio, attract new customers, or enter entirely new end-markets. Done well, these deals can create value and offer greater competitive advantages. However, poorly planned deals can erode value, leading to significant operational disruptions for the newly merged entity and often in the overall market. The hurdles for aerospace and defense are higher than in most other sectors, thanks to the high need for capital and the long development cycle. Every deal is unique, but these strategies can help dealmakers achieve optimal deal value:
- Understand deal value drivers. All value creation opportunities must be explicitly defined, with a plan for maximizing each. This is key to a well-designed acquisition and integration strategy. Value drivers vary between acquisitions, but one thing does not: the need to clearly identify specific drivers and develop a plan for managing each.
- Decide on the appropriate governance structure. There is significant variability between companies in geographical and operational preferences, as well as culture. Striking a balance between the two companies is key. You must preserve the best aspects of both entities. Work with an advisor to assess the right governance structure. Many companies take the traditional approach, organizing functional teams to oversee integration. That can help meet transaction objectives, but it often fails to drive value. A better approach is often to define value creation groups as the core of integration. The right governance model is a significant factor in deal value, because it enables you to distribute risk and manage interdependence in a timely and efficient fashion.
- Create a due diligence clean room. Prior to closing, access to data can be a huge issue. Don’t wait until after closing to delve into the specifics. Instead, use a clean room to accelerate integration. With this strategy, a third party or specific individuals who have no conflicts share data between the two parties. This helps offer strategic insights without leaking sensitive data. For instance, there might be future opportunities the parties are negotiating. If the parties cannot discuss or disclose the impacts of these opportunities, it can trigger significant additional risk and cost. A clean room allows you to assess exposure levels for both parties.
- Create detailed operating models for the final value chain. You must understand each company’s current position in terms of people, systems, assets, and processes. This is key to understanding potential capabilities and realizing future synergies. You must be able to begin planning for your future organizational structure, in addition to anticipating demographic, technological, and culture shifts.
- Perform culture assessments. Cultural mismatch is a significant source of conflict, and can quickly erode deal value. Culture is critical to every aspect of a company, including how decisions are made and whether and how well people collaborate. This is even more true for A&D companies evaluating cross-border targets or novel capabilities outside of their core business model. Cultural mismatch slows everything, and can ultimately be the undoing of your deal.
The right assistance can help you realize more value. Work with a skilled deal team that has experience in your industry to ensure all factors are maximally aligned for success.