Acquisitions are an integral part of corporate strategy. Poorly thought out or inappropriate business strategy is one of the most frequently cited reasons M&A transactions often fall short of expectations. So, this article will provide tips on how to develop an acquisitions strategy.
The essence of an acquisitions strategy
The consequences of the globalization of the economy everywhere force companies to increase capital to use it more efficiently. This process in market conditions has become a common, almost everyday phenomenon. Large companies are constantly looking for additional sources of expansion for their activities. And it’s natural. Now one of the most popular ways is mergers and acquisitions of companies. Although other forms are not so common today, they are preferable from an efficiency standpoint in some cases.
In the acquisition process, one can distinguish between the planning and execution stages of the plan. A business and acquisition plan is developed at the first stage. The second stage involves searching, screening, contacting the target, negotiating, planning integration, closing the deal, integrating, and evaluating. Therefore, if you want to understand the role of planning in the M&A process, it is necessary to understand the goals reflected in the mission and strategy of the acquiring company.
As part of the development strategy of the acquiring company, the presentation of the implementation strategy is to prove the need for the acquisition compared with other alternative options for further business. Therefore, the choice of implementation strategy is based on a comparative analysis of alternative options. The final decision on the implementation strategy should be based on cash flow forecasts. However, sometimes other non-material factors become the selection criterion.
Business plan as a reflection of the strategy of the acquiring company
The process of acquisition is complex and multi-stage. During the integration of the two companies, a huge number of production, organizational, personnel, and other issues arise, the successful solution of which determines the efficiency of the further functioning of the combined company. Since a company loses its legal independence during the acquisition, the acquiring company is fully responsible for organizing the integration process. At the same time, it is necessary not only to complete the transaction itself successfully but also to develop a strategy for the further development of the combined company, to effectively combine the two business models to obtain the desired synergistic effect from the acquisition. Strategic goals determine the main motives for acquisition, which include:
- increasing the range,
- expanding sales markets,
- building up competitive advantages,
- limiting competition,
- introducing new technologies, etc.
Drawing up a business plan is the initial stage of the acquisition transaction. At the same time, the business plan of the acquiring company will differ from the traditional business plan for a newly created business. The business plan of the acquiring company is of a strategic nature and reflects the relationship between the company’s mission, its strategic goals, and ways to achieve them. When preparing a business plan, it is important to develop a strategy for the combined business that would consider the interests of the main actors. The business plan allows the initial stage to evaluate all the opportunities and identify all possible threats to the functioning and development of the combined business. Thus, business planning as part of implementing the acquisition strategy can be divided into three main stages.
- Analytical: analysis of the external and internal environment.
- Strategic: definition of the mission and development of corporate and functional strategies within the framework of the chosen mission, as well as the strategy for implementing the business plan.
- Control: assessing the risks of implementing a business plan, identifying alternative options for achieving goals, and monitoring the implementation of a business plan.