flevyblog

Flevy Blog is an online business magazine covering Business Strategies, Business Theories, & Business Stories.
MANAGEMENT & LEADERSHIP STRATEGY, MARKETING, SALES OPERATIONS & SUPPLY CHAIN ORGANIZATION & CHANGE IT/MIS Other

Capabilities-driven M&A

Editor's Note: Take a look at our featured best practice, M&A Sell-Side Process Letter - Phase I and Phase II (5-page Word document). What is the M&A process letter? The M&A process letter is a template or example which assists transaction advisory consultants, investment bankers, and M&A practitioners with a sound basis from which to outline the proposed transaction steps in an M&A process. As the M&A process progresses [read more]

Also, if you are interested in becoming an expert on Post-merger Integration (PMI), take a look at Flevy's Post-merger Integration (PMI) Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

* * * *

Mergers and Acquisitions (M&A) generally do not produce the outstanding results that they are envisioned and purported to provide.  Some companies in certain industries, however, demonstrate consistent success when it comes to M&A.

A constant question across all industries, as far as M&As are concerned, pertains to the factors that differentiate organizations with successful histories.  The magic ingredient in the success of these companies is their Corporate Strategy that utilizes Capabilities as the source for inorganic Growth.  Capabilities-driven M&A have managed to raise shareholder value for the acquirer despite the tough years since the economic crisis of the 2000s.  The majority of other inorganic Growth attempts produced a loss of value.

Companies employing the Capabilities-driven Strategy were recompensed with deals that had a Compound Annual Growth Rate (CAGR) average of 12 percentage points greater in shareholder return compared to M&A deals by other acquirers in that very industry and region.

Particular industries, for instance Information Technology and Retail, demonstrated a bigger effect. However, all industries displayed a steady, noticeable, Capabilities Premium in M&A.  Capabilities-driven Strategy is exceptionally beneficial in M&A transactions where, frequently, time window is narrow and the risks elevated.

Capabilities Systems are defined as 3 to 6 reciprocally strengthening, distinguished Capabilities that are structured to hold up and drive Organizational Strategy, integrating people, processes, and technologies to create something of value for customers.

Setting apart likely M&A success factors is accomplished more easily by separating successful deals by their declared Intent consequently, capturing the dominant view regarding purpose of each deal.

Intent can be classified into 5 categories: Capability Access Deals, Product and Category Adjacency Deals, Geographic Adjacency Deals, Consolidation Deals, and Diversification Deals.

There is a lot of talk about Fit during M&A discussions.  Fit does not mean introducing an ostensibly linked product or service, plugging a gap in a category, or moving in a new geography—such sorts of acquisitions are frequently unsuccessful.

Fit relates to unity, the benefit that ensues when Capabilities of a company fit mutually into a system, lining up to its market position, and employed to its complete array of products and services.

Deals when cross-categorized by their Capabilities System Fit, fall into following 3 categories:

  1. Enhancement Deals
  2. Leverage Deals
  3. Limited-Fit Deals

Let us delve a little deeper into the 3 categories.

Enhancement Deals

Enhancement deals enable the acquiring company to include new Capabilities so as to close gaps in its present Capabilities System or counter an alteration in its market.

Nearly 2/3rd of the deals studied—in a 2011 study spanning 8 sectors—used Capabilities to good effect, either by way of Enhancement or Leverage. 

Leverage Deals

Leverage deals are where the acquirer makes use of prevailing Capabilities System in their company to handle incoming products and services, customarily augmenting the acquired company’s performance.

Leverage deal are frequently low-risk deals that may not require the acquirer to alter anything concerning its inhouse Capabilities System to make it work. 

Limited Fit Deals

Limited-fit deals are deals where the purchasing company generally ignores Capabilities.  Normally such deals provide a purchaser with product or service that need new Capabilities.

Interested in learning more about Capabilities-driven M&A?  You can download an editable PowerPoint on Capabilities-driven M&A here on the Flevy documents marketplace.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.  Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market.  They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions.  I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power.  For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients.  In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over!  The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd

24-slide PowerPoint presentation
Seventy percent of change programs fail, according to the April 2001 Harvard Business Review article, "Cracking the Code of Change". According to Bain & Company, businesses that implement fast, focused, and simultaneous change programs can create enormous and long-lasting shareholder [read more]

Want to Achieve Excellence in Post-merger Integration (PMI)?

Gain the knowledge and develop the expertise to become an expert in Post-merger Integration (PMI). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

M&A is an extremely common strategy for growth. M&A transactions always look great on paper. This is why the buyer typically pays a 10-35% premium over the of the target company's market value.

However, when it comes time for the Post-merger Integration (PMI), are we really able to capture the expected value? Studies show only 20% of organizations capture projected revenue synergies and only 40% capture cost synergies. Not to mention, the PMI process is typically very painful, drawn out, and politically charged, often resulting in the loss of key personnel.

Learn about our Post-merger Integration (PMI) Best Practice Frameworks here.

Readers of This Article Are Interested in These Resources


163-slide PowerPoint presentation
Unlock M&A Success with the Comprehensive Due Diligence Checklist Toolkit Are you ready to embark on an exciting journey into the world of mergers and acquisitions (M&A)? The M&A landscape is both dynamic and rewarding, offering opportunities for businesses to expand their [read more]


 
4-page Word document
 
 
32-slide PowerPoint presentation

About Mark Bridges

Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.

, , , , , , , , , , , , , , , ,





Complimentary Business Training Guides


Many companies develop robust strategies, but struggle with operationalizing their strategies into implementable steps. This presentation from flevy introduces 12 powerful business frameworks spanning both Strategy Development and Strategy Execution. [Learn more]

  This 48-page whitepaper, authored by consultancy Envisioning, provides the frameworks, tools, and insights needed to manage serious Change—under the backdrop of the business lifecycle. These lifecycle stages are each marked by distinct attributes, challenges, and behaviors. [Learn more]

We've developed a very comprehensive collection of Strategy & Transformation PowerPoint templates for you to use in your own business presentations, spanning topics from Growth Strategy to Brand Development to Innovation to Customer Experience to Strategic Management. [Learn more]

  We have compiled a collection of 10 Lean Six Sigma templates (Excel) and Operational Excellence guides (PowerPoint) by a multitude of LSS experts. These tools cover topics including 8 Disciplines (8D), 5 Why's, 7 Wastes, Value Stream Mapping (VSM), and DMAIC. [Learn more]
Recent Articles by Corporate Function

  

  

  

  

  


The Flevy Business Blog (https://flevy.com/blog) is a leading source of information on business strategies, business theories, and business stories. Most of our articles are authored by management consultants and industry executives with over 20 years of experience.

Flevy (https://flevy.com) is the marketplace for business best practices, such as management frameworks, presentation templates, and financial models. Our best practice documents are of the same caliber as those produced by top-tier consulting firms (like McKinsey, Bain, Accenture, BCG, and Deloitte) and used by Fortune 100 organizations. Learn more about Flevy here.


Connect with Flevy:

     
  


About Flevy.com   /   Terms   /   Privacy Policy
© . Flevy LLC. All Rights Reserved.