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How to design a successful long-term M&A plan

We usually hear about M&A deals in the context of colossal transactions and spectacular acquisitions by well-known industry leaders. Yet the way towards successfully using M&A as a tool to generate competitive advantage is not by looking for the largest possible deal, but instead developing a sound long-term investment strategy. Here are some tips towards making sure your company is part of the minority that really knows how to turn M&A into a valuable asset.

Utilize M&A as a tactic, not a strategy
What’s the difference? Strategy is defined as a plan of action geared towards achieving a long-term or overall aim. As a company, your strategy might define which markets you are active in and how you plan on competing in them. A tactic, on the other hand, is the way you specifically plan on achieving a strategy. When you look at M&A as a tool towards achieving a clear goal, you reduce the risk of making acquisitions that won’t result in additional value creation. (1)

Systematic approach 
According to a study that took a look at long-term M&A value creation, companies that have a strategy centered on smaller and more frequent acquisitions perform better than those relying on organic growth. What is more, the data also suggests that this approach is less risky than a strategy of avoiding M&A altogether! (2)

Practice makes perfect 
It’s common knowledge that the more you do something, the better you get at it. Multiple studies have shown that this concept is as true in M&A as everywhere else. Companies that regularly conduct deals and have more experience than their competitors grow faster and produce higher returns.

 

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References:
(1) Taking a longer-term look at M&A value creation – McKinsey
(2) Successful M&A: The Method in the Madness – BCG

Photo Credit: Flickr User Jasmic