Role of consulting in M&A

It is a statistically proven and a widely known fact, that only 3 in 10 big mergers and acquisitions create meaningful value for shareholders, while 5 out of 10 actually destroy value. In spite of the oddly skewed statistics, mergers and acquisitions continue to be a popular way for organizations to grow – horizontally, vertically, across the border- and to diversify – synergistically or unrelated.

When a firm decides on starting the process of merger and acquisition with another firm, it hires a gamut of outside professionals – investment bankers, consultants, valuation experts, accountants, attorneys. These professionals help with various steps of the M&A process right from scouting for firms to acquire or merge with, to aiding in the post-merger integration of firms. This article concentrates on the role of consultants in the process.

The first stage at which consultants are involved, is the M&A strategy phase. Consulting firms do a lot of projects with companies to formulate their growth strategy. Hence, the M&A strategy work is an extension of the same. Consultants are hired to form a detailed M&A program that consists of conceptualising the goals, areas to grow in, kind of partnership vehicle to be preferred (M&A, Joint venture, Alliance etc.) etc. The next stage is the screening of acquisition targets. This includes generating a list of potential targets based on criteria decided by the M&A strategy, creating profile and investment thesis for targets, and then developing an approach plan for the targets. The third stage at which consultants enter is strategic due diligence. Strategic due diligence involves detailed study of the target to confirm the investment thesis, establishment of possible synergies, forecasting of market trends etc. The fourth stage, which is also the most crucial stage because of its high contribution to failure or success of the merger, is the merger integration. In this stage, value from the merger needs to be extracted, but with as less friction as possible. Apart from the operational decisions that need to be taken, a lot of cultural issues need to be sorted out in a speedy manner – organization structure, a shared decision-making system etc. A consulting firm may aid the company through all four stages or may make an entrance at any intermediate stage of the process.

M&A activity had taken a hit in the initial phase of recession, but now private equity players are back in the game and the credit and equity markets are again financing M&A deals. This will boost the M&A activity in the near future, which spells good news for the consulting industry.

Source: http://www.bain.com/bainweb/Consulting_Expertise/capabilities_detail.asp?capID=9

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3 thoughts on “Role of consulting in M&A

  1. "It is a statistically proven and a widely known fact, that only 3 in 10 big mergers and acquisitions create meaningful value for shareholders, while 5 out of 10 actually destroy value"Please be specific as to the region and time period. This may be true abroad, but Indian M&A's do add value due to cultural fit, management continuity etc.Secondly, 10-5-3=2. Am I to conclude that 2/10 mergers are Zero NPV?

  2. @Anandh: Well this data figure is widely found in reports and is a global figure, includes India, but is not India specific. India M&As add value to cultural fit, management continuity etc. in some cases, but in a lot of cases they don't as well. We would not subscribe the success of M&A to the characteristic of belonging to a region.Also 2/10 mergers do not need to be zero NPV completely, but they are not worth the effort. The kind of shareholder value that they create does not justify the expense and efforts involved. That is the reason for stating that "only 3 in 10 big mergers and acquisitions create meaningful value for shareholders, while 5 out of 10 actually destroy value."

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