Mastering Mergers and Acquisitions: Lessons from Two Chief Strategy Officers
Chief Strategy Officers Alok Agrawal and Kevin Ilcisin share invaluable insights on mastering the M&A process, emphasizing the importance of strategic alignment, thorough due diligence, and effective integration to drive sustainable value creation in acquisitions.
Executive Summary
This article provides key insights from experienced chief strategy officers on navigating the complex M&A landscape. We explore the entire acquisition lifecycle, from sourcing to integration. Key takeaways include ensuring M&A activities are overall corporate strategy accelerators, building and managing a robust deal pipeline, conducting thorough due diligence, and ensuring smooth cultural integration. By following these best practices, strategy executives can increase the likelihood of successful M&A outcomes and drive value for their organizations.
Introduction
Mergers and acquisitions (M&A) have long been pivotal tools for companies seeking to accelerate growth, enter new markets, increase capabilities, or enhance their competitive positioning. However, the road to a successful acquisition is not as straightforward and predictable as many think. It’s a complex endeavor that requires multidisciplinary alignment, strategic foresight, relationship building, upfront integration planning, and effective execution.
This article draws from the experiences of two experienced chief strategy officers (CSOs), Alok Agrawal, CSO and Head of Ventures at Celestica and Kevin Ilcisin, CEO of Luna Innovations, founder of Juniper Strategies, and former SVP of Strategy and Corporate Development at NI (National Instruments), offering a comprehensive guide to navigating the M&A process. From identifying potential acquisition targets to ensuring post-merger integration, their insights provide a roadmap for executives aiming to master the art of M&A and drive meaningful value for their organizations.
The Acquisition Lifecycle
The acquisition consists of several distinct phases:
- Proactive identification of markets and targets
- Developing preliminary strategic thesis
- Cultivating potential targets
- Finalizing strategic thesis
- Financial modeling, price discovery, and bidding
- Due diligence
- Purchase agreement and regulatory approval
- Integration planning
- Post-merger integration and value capture
Regardless of deal size, these steps remain consistent. Success in M&A requires careful attention to each phase of the process.
Identifying Search Fields for Potential Acquisitions
The guiding principle for identifying acquisition targets is that they should be a natural consequence of the company’s overall strategy. Your primary focus should be on accelerating your existing strategy, and any M&A consideration should help you hit your goals faster. At the same time, it’s important to remember that acquisitions should not form the entirety of your company’s strategy. Transactions are inherently outside management’s control, a condition that many organizations and leaders don’t consider.
“You need to have an existing strategy, because you don’t control the timeline of acquisitions. If you say, ‘Closing an acquisition is part of achieving our strategic goals,’ you’re basically handing your strategy over to someone else.” – Ilcisin
Depending on the company’s financial situation, you should also define financial guardrails based on revenue, EBITDA, and multiple to ensure the likelihood of finding actionable targets.
Input from across the company for identifying acquisition targets is always welcome and should be incentivized. But the final decision should be a balanced conversation among the CEO, CFO, and Chief Strategy Officer. The CEO/CFO/CSO complement different viewpoints and mitigate potential biases from each of them or from leaders across the organization. The CSO’s perspectives on building the future of the organization are balanced by the CFO’s focus on financial health and realization of key synergies. CEOs highlight potential stakeholder misalignment and other strategic or operational risks, for example, the capacity of the organization to absorb acquisitions and risks of losing focus on customers.
Key considerations for this step include:
- Focus on accelerating your existing strategy rather than replacing it
- Ensure coherence between organic and inorganic strategies
- Define search fields primarily through input from business units
- Include some “blue sky” thinking about transformative adjacencies
- Set financial guardrails based on revenue, EBITDA, and multiples
Developing Relationships with Acquisition Targets
Once potential acquisitions are identified, you should begin to cultivate a direct relationship with the targets. You can do this by cold calling a member of the executive leadership, board member or corporate development teams, a private equity partner responsible for managing the company, or the investor relations team for public companies.
Remember that building relationships with potential acquisition targets is a two-way sales process. Try to get to in-person meetings as fast as possible and focus the early interactions on partnership and creating mutual value.
“Most deals develop over dinner rather than PowerPoint.” – Agrawal
Developing Relationships with Investment Banks
Investment banks can be valuable partners in the M&A process, but it’s important to approach these relationships strategically. Bankers are always interested in having conversations; the challenge is finding the ones with the right deal flow to match your areas of interest.
Bankers can be transactional and focused on the targets already in their pipeline. It’s important to hold education sessions so the bankers understand your business and priorities. However, be cautious about the information you share, as confidentiality should not be presumed.
If you are not already a credible acquirer, you will also need to convince them of your earnestness to execute. You can do this by highlighting your liquidity or public comments. Once you’ve done a few deals, it will build momentum and can eventually create a flywheel effect.
Defining and Managing Your M&A Pipeline
Building and managing a robust M&A pipeline is essential for success. Fortunately, several sources are available to help you come up with a large funnel of opportunities.
Potential sources to build your M&A pipeline:
- Salespeople and GMs in current businesses
- Industry conferences and trade shows
- Current customers
- PE firms with relevant assets
- Market research portals, e.g. Bloomberg, Pitchbook
- Investment bankers
Continuously build momentum by identifying and adding new targets. It might take multiple conversations over months, even years, to get to a deal.
Develop consistency by tracking the stage of each deal in the pipeline and updating your executive leadership team (ELT) on an ongoing basis. If multiple deals reach a commitment point at the same time, the ELT should decide on prioritization of money and resources as required.
Insight
CSO Question: At what point would you consider a partnership or joint venture instead of an acquisition?
Agrawal's Response: “I would start here. When I meet with a company, I don’t presume the structure of any potential deal. Let the process be organic... know your playbook but leave the conversation open.”
Identifying Potential Risks During Due Diligence
A crucial factor in determining whether a deal will be successful involves analyzing why one company will be more valuable when owned by a new company. Most of your due diligence should focus on validating the strategic rationale for the acquisition and identifying potential risks.
Key considerations for this step include:
- Verifying that the deal will accelerate your existing strategy
- Analyzing why the target will be more valuable under new ownership
- Scrutinizing revenue and cost structure synergy assumptions, which are often overestimated
- Balancing effort on easily understood factors with those that significantly impact value
Most importantly, if you find a critical value destroyer or determine the strategic thesis is flawed, revise your perspective, your bidding strategy, internal expectations, and in some cases be prepared to walk away.
Minimizing Disruption During the Integration Process
Successful integration starts before the deal is closed. As you’re going through the due diligence stage, you should be standing up the integration team and discussing how you will operationalize the company when it becomes part of yours.
A lot of assumptions are made during diligence and integration planning. Your integration team should be prepared to validate those assumptions and put together an operational plan to bring the two companies together. Ensure that you have experienced, dedicated program managers with executive authority.
Focus the integration where it’s necessary for controls (e.g. finance, cybersecurity) and value creation (e.g. cross-selling, footprint rationalization). Integration planning is about thousands of small, interdependent decisions, and you need a way to break through any log jams.
“Integration is thousands of little decisions, but if you let those little decisions pile up or become gates to making the next decision, you never get to the point of realizing the value.” – Ilcisin
Measuring M&A Effectiveness
Effective measurement of M&A success requires both leading and lagging indicators. Typical lagging indicators include revenue growth, new customer acquisition, cross-sell revenue, and OpEx synergy capture. Many companies are tempted to rely only on lagging indicators, but by the time you get to validate those numbers, it’s often too late. You should also include leading indicators to validate the assumptions in your strategic thesis and integration plan. There are no typical leading indicators – they should be tailored based on your plan. Look for the earliest indications that your assumption is working.
Addressing Cultural Differences
Addressing cultural differences is one of the most critical elements to ensure a smooth transition and integration success. Too often cultural integration is decided by heuristic factors, such as “We are both services companies” or “We both have decentralized, flat organizational structures.” Instead, cultural fit during an integration boils down to the question, if you switched two people in the same roles from each company, would they make decisions in the same way?
If cultural change is needed, embrace it from the beginning and have top leadership drive the necessary changes. Many companies make the mistake of assuming misaligned culture must be accepted because it takes too long to change. If you have the right team and approach, including quantifying both organizations’ existing culture, driving the necessary transformations can be done effectively and efficiently.
Final Thoughts
Mastering the M&A process is not merely about closing deals but about creating sustainable value that aligns with your company’s long-term strategic goals. The lessons shared underscore the importance of a disciplined approach—one that begins with a clear strategy and extends through rigorous due diligence and thoughtful integration. By adhering to these best practices, organizations can mitigate risks, foster cultural cohesion, and ultimately achieve the synergies that make M&A a powerful lever for transformation.
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