Evaluate an Acquisition

CONSULTING METHODOLOGIES

M&A is very sexy. So it is easy to get carried away, but the harsh fact is that only 1 acquisition in 4 creates value for the acquirer.

Make sure you are in the successful 25%, by asking yourself these questions:

I Executive Summary

[Summarise your acquisition recommendation and your key rationale for it]

• Description of the opportunity
• The strategic rationale for buying this company
• The expected value creation
• Details on implementation

II Is this acquisition the best way to realise our strategy?

• Is acquisition a better way to deliver the strategy than alternatives?
  • Can we deliver it organically?
  • If organically won’t work, are less risky alternatives (e.g. alliance, JV, minority stake) possible?
• Does this company fit our strategy?
• Is this company a better fit than other potential acquisitions? Why?

III Will this acquisition create value?

• What is our “walk-away” price?
  • What is the stand-alone value of the target company?
  • What is the value of synergies?
    • What is our Value Hypothesis?
    • Should synergies be probability weighted? (revenue synergies are usually more risky than cost synergies)
    • How long and how much investment will they take to realise?
    • What dis-synergies and deal costs exist?
  • What are our key financial assumptions? [Tool: Sensitivity Analysis]
  • How does this price compare to Comparable companies and deals? [Tool: Comparable Multiples analysis]
• Are we likely to be able to buy a a price below our “walk-away”?
  • Why will the owners want to sell?
  • Are we the natural owners?
  • Why should we approach now, or does our negotiation position improve if we wait?

IV Will we be able to execute the deal?

• Can we close the deal successfully?
  • Can we raise financing?
  • Can we get regulatory clearance? (Anti-monopoly, national interest)
  • What should we look out for in Due Diligence?
  • What deal structure should we use? (Legal and tax considerations)
• Can we manage the risks?
  • What are the major risks?
  • What action can we take to mitigate them?
• Can we integrate the acquisition successfully?
  • How do we preserve value?
    • How do we preserve the “crown jewels”?
    • How do we avoid a “culture clash”?
    • What is the communications plan?
  • What will be our integration plan?
    • Who will be the integration team?
    • What are the priority integration projects?
    • What will be the post-integration organisation chart?
    • What will be the approach, resources and key decisions?
    • How are we going to monitor integration?