Is this the end of M&A as we know it?


Part of me says, “Oh please, let’s hope so!” — for more than a decade we’ve heard constant complaints about deals that don’t reach their full potential, and watched the same sort of mistakes being made over and over:

  • the hoped-for synergies that are never really defined
  • the integration or transition plan that’s 3000 lines long but gives no one a clue about where the effort actually stands
  • no coordination of business and technology plans during integration or transition
  • the blanket assumption that a move of the acquiree’s business to the acquirer’s systems and processes are always the right choice

There’s no doubt about it—deal volume and total deal value is down year over year from 2007. Credit market woes are pushing buyers to move away from senior debt toward riskier mezzanine capital. Common sense would tell you that if you’re taking on more risk, you’d better be vetting out risks earlier in the deal timeline, yes? Valuations are coming into line due to market conditions, so there’s not so much need to use due diligence to position for negotiating advantage during valuation discussions (but hey, it never hurts to strengthen your position during negotiations, right?) But, given the additional risk you’re taking on with the mezz financing, you’d better have a clear idea about what your IT spend needs to be in year 1. Pre-close is the time to ferret out those orphaned releases, costly overly-customized environments and low-productivity in-house custom IT development shops. Find them, redefine them, and build a tight cost model so you don’t take on any more risky debt than necessary.

dagr_by_arboGloom and doom, we can’t shake it these days—it feels a little like we’re living through Ragnarok or at least Fimbulvetr, the winter of winters that precedes that Destruction of the Powers, doesn’t it? Many assets are being put on the block these days as part of a vast global deleveraging battle. Who couldn’t use a few valkyries on the team, to help choose among these slain assets the most worthy and heroic and carry them off to the Valhalla of value creation?

Difficult days for all of us, these. Let’s remember the great Norse legend does end on an up-note, though — after the great battle, the world resurfaces anew, fertile, with a bright future. Even in these uncertain times, there’s much you can do to either position the assets you plan to put on the block, or to prepare for the success of future acquisitions. More about both topics in future posts.

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