The Value of Programmatic M&A
For companies looking to grow through M&A, it’s best to think of dealmaking as an everyday issue.
Rather than treating deals like one-off events that can be ignored until it’s time to swing for a home run, acquirers should maintain a consistent approach with an emphasis on deal volume rather than sheer dollar value.
This programmatic approach to M&A is proven to be effective, including in a recent McKinsey & Company report called Repeat performance: The continuing case for programmatic M&A: “New research confirms that companies that regularly and systematically pursue moderately sized M&A deliver better shareholder returns than companies that don’t.” The report finds that companies embracing the approach by pursuing a number of smaller deals over several years actually outperform peers relying on episodic “big-bang” transactions.
While the McKinsey report is focused on Global 1,000 companies, we also see this play out among middle-market clients, and that’s why we encourage Copper Run clients to maintain a programmatic approach, especially in today’s fast-moving business environment.
Perfecting the process
When M&A is treated like an ongoing commitment rather than a one-off project, outcomes are maximized. Like professional athletes with physical training, acquirers with a dedicated and disciplined approach will be rewarded. Essentially, practice makes perfect for everything from deal sourcing to due diligence and integration planning.
“Our research shows that, compared with peers, programmatic acquirers often focus on building end-to-end M&A operating models with clear performance measures, incentives, and governance processes. For these companies, the devil is in the details. Potential acquisitions are not evaluated ad hoc, for instance. Instead all the decision makers and the criteria they are using are clearly defined and made transparent to all stakeholders.” -McKinsey & Company report
At Copper Run, we tell our clients that their approach should be no different than selling their own products. Just like they have to develop a sales strategy and execute daily, they have to be “in the market” every day, evaluating M&A opportunities. Being keyed into the market and understanding what competitors are doing, and what they’re not doing, is absolutely critical. We find that you learn just as much from the deals you do not make as the ones you do.
With a programmatic approach, acquirers think about even the seemingly minor details, like how often they will develop a new list of target companies and how they will go about discussing them. A programmatic approach is especially important during integration, and the most strategic acquirers will be able to complete due diligence and integration planning at the same time, talking early on in the process about how to redefine roles and combine processes, among other things.
In its report, McKinsey found “programmatic acquirers were twice as likely as peers to estimate revenue and cost synergies at various stages of the deal-making process, and they were 1.4 times more likely than peers to have designated clear owners for each stage.”
In one example of a successful programmatic approach to M&A, Copper Run works with a commercial roofing client whose executives know what to expect and whose outreach efforts are highly regimented. The dealmaking process is simply a part of ongoing operations, allowing the organization to establish key relationships for deals that could happen in the future—getting a “first foot” in the door. The results are indisputable: the deals are accretive to EBITDA and have allowed them to expand geographically and added enterprise value.
Conversely, a nonchalant approach to M&A typically leads to subpar results. We’ve seen otherwise savvy and successful businesses dramatically underestimate the process. Inexperienced and undisciplined buyers believe they can put together a deal by calling only one or two targets, despite the fact that it can take 50 or more follow-up calls and emails just to secure the information needed to make educated decisions. These companies simply have not established the proper procedures to go about pursuing deals and following up with targets, and will inevitably become frustrated and walk away.
Partnering with an advisor
Having a programmatic approach is a significant commitment, but the assistance of an experienced advisor can be helpful.
The case for working with an advisor is like that of hiring a personal trainer. Anybody can occasionally run or go to the gym, but it is unlikely they will achieve their desired results. Those willing to invest in a personal trainer, however, can achieve far more than they would on their own.
Programmatic M&A is about consistent investment in a well-designed plan, and advisors are well suited to assist.
Michael Shaw is a Partner and Managing Director at Copper Run assisting clients in both buy side and sell side engagements.