M&A Division Setup – Best Practices

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    Korath Wright
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    What are some best practices for implementing an M&A division or program?

    In my opinion, the implications of setting up an M&A division are far reaching. The function both interacts with and impacts all other business divisions. The M&A processes of strategy, due diligence, integration planning, functional integration, change management, facilities integration, and others – each can require inputs and engagement from every functional area.

    Building the infrastructure for effective M&A processes can have a material effect on transaction outcomes, the current performance of each functional area, and their future performance as new capabilities are integrated. Depending on the specific needs of the situation, the best practices are different, however some of the tools which can be used to implement an M&A division include:

    • Clearly defined goals. When the goals and initiatives are clearly defined, it allows for focused and quantifiable performance. Knowing what’s being measured and where incentives lie can be one of the key aspects in aligning motivation to realize the greatest benefits for the individual and firm.

    • Engagement of top management. It’s beneficial for top leadership to be involved in the M&A unit business case development, initial communications and the implementation process. This provides more buy in from the leaders, as well as support from the rest of the organization. Relationships and processes need to be initiated across the organization which may require authorization and interjection from leadership to move forwards effectively.

    • Dedicated roles and resources. Clearly defining and dedicating resources provides the capacity for the program to produce results. Setting up the department as a me-too project, or adding it to existing workloads, reduces the coherence and focus of the program’s results. As a subdivision, business line items need to be adjusted to reflect the required activities in a continuous way. Contrary to M&A transactions themselves, beyond the initiation this is not a project, but rather is business as usual.

    • Build a playbook and ‘lessons learned’ documentation. Setting up the processes, information systems and tracking systems to document ‘lessons learned’ prevents lessons from having to be re-learned. As a starting point, common best practices for similar organizations and transactions, and previous experiences can be used as a platform to build from, as experiences accumulate. Having the playbook process in place upon setting up an M&A division helps ensure consistency, and that early lessons are not missed.

    • Key customer journeys. Strong alignment of the M&A departments setup and directives in accordance with the key customer journeys ensures a focus on growing the business in line with strengthening value drivers. Application of an understanding about the key customer journeys at the level of merger strategy provides a clear path forwards for M&A projects, while also informing on which transactions to avoid. Additionally, while determining the scope of the M&A division, examining key journeys provides insight into appropriate resource allocation.

    • Strategic rationale. In depth understanding of the forces that shape the structure of competition in a given market allows for an M&A division to establish a compass and yardstick for decision making. It provides information on where opportunities are to position in the market, and conversely where the competitive forces are the strongest. This involves development of a roadmap that includes rivals, suppliers, customers, new entrants and substitutes. With compliments and governments additionally providing changing factors which can interact in different ways with the various forces. A firm understanding of the company’s strategic positioning and the rationale behind its targets, allows for a lean setup of an effective M&A division.

    A multitude of other specific areas are important to a company when setting up an M&A department which are different depending on the company, situation and broader environment. Careful consideration of these factors to achieve the effective setup of an M&A division can save a company costs, working-hours, lead to completing more and better deals, and prevent the company from making bad deals.

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