Matchmaking In M&A May Be Broken – Here’s How to Fix It

April 14, 2023

Mergers & Acquisitions (M&A) are an act of consolidating firms or assets to stimulate growth, gain competitive advantage, increase market share, or influence supply chains.

However, it’s noteworthy that still, the matchmaking process for a lot of M&A is subjected to the old-school method of depending on the network for good leads, which leads to a lot of opportunities lost. To that end, it’s critical to introduce innovation and bring in tech to support these processes, such as the issues of bias that may skew the process toward one party, resulting in a lost opportunity for both parties down the line. It’s also vital to improve the efficiency of the matchmaking process by having more accurate intelligence on the target company.

But before getting into the nitty-gritty of the same, let’s understand why mergers and acquisitions happen.

Why Do Companies Undertake Mergers & Acquisitions?

There may be many reasons to acquire or merge with a company, including:

  • Growth Opportunity: Mergers allow the acquiring companies to increase their market share without the grind and hustle of organic expansion. Acquirers buy the business in the form of a horizontal merger.
  • Synergies: When business activities combine, it improves performance efficiency and reduces across-the-board expenses because each company benefits from the other’s strengths.
  • Increased power of supply chain: By purchasing one distributor or supplier, businesses can eliminate cost tiers. Typically, buying out one supplier or a vertical merger allows companies to save on their margins. If a company buys out one of its distributors, it can ship out its product at a much lower cost.
  • Remove the competition: Many merger and acquisition deals allow acquirers to eradicate competition to gain more market share. However, there’s a flip side to it. Companies must often pay a heavy premium to the target company’s shareholders to accept this route.

Probable Reasons for Broken Matchmaking

There are many reasons for broken matchmaking between companies acquiring and getting acquired. Before looking for ways to fix it, businesses must identify the key areas that need improvement.

Biased Traditional Investment Banking Processes:

Undoubtedly, traditional investment banking processes promote biased opinions and judgements. They tend to perpetually push for an acquisition merely based on the companies wanting to be acquired. Any company reaching out to them is provided with a lead from the portfolio available to them. However, that should not be the case.

Failing To Target the Right Companies to Acquire:

A “prospect” for one might not be a “lucrative option” for another. The idea is to find the right company to acquire, irrespective of the cost. If businesses miss out on potential prospects simply because they come at a cost, they need to reconsider that.

Traditional investment bankers look for sell-side companies and find global buyers – but that may not be the best search method as we have seen.

Inability To Gauge the Potential of Smaller Companies & Startups:

Startup companies often go unnoticed in the process as potential acquisition targets. Considering that these companies are smaller prospects for acquisition or are not visible to the investment banking community, they are overlooked. They are neither presented to prospective buyers nor their board, or the CEO, because of an exceedingly shallow traditional matchmaking technique being employed.

In contrast, GrowthPal is a pragmatic merger and acquisition enabler. As a team, we firmly believe in a data-driven and technology-led approach to matchmaking. This allows us to offer better recommendations and enable programmatic merger and acquisition strategies for enterprises that believe that small acquisitions can be an apt way for growth. As such, we help businesses build the precise pipeline of companies they can acquire. In fact, according to McKinsey, 8 to 10 small acquisitions are better than one large acquisition, depending on business needs.

Due to all these aforementioned problems, fragmented perspectives arise. It further leads to unresolved expectations, potential business value loss, and time losses.

How To Fix It?

While there are no quick fixes to this problem, some key steps may help in the long run. Read on to know more:

Leverage Personalized Recommendations

Personalized acquisition recommendations are imperative if businesses want to move beyond traditional methods. With the same, businesses can plan their M&A agenda in a way that’s guided by tailored insights on companies that could complement their existing business purpose. Besides, personalized strategic recommendations make it possible to eliminate noise and speed up the process.

Map to the Opportunity Matching Your Requirements

Checking out the right kind of opportunities for merger and acquisition is very important. As there are no pre-set rules or comprehensive platforms, it is best to follow a customizable strategy that allows businesses to leverage any opportunity to the optimum and yield returns. Investment bankers should focus on every possible opportunity, whether a small or big company, depending on the business needs.

Remove Biases

With the growing use of data-driven decision systems across industries, biases are common. Startups and unicorns often face these concerns, which become an obstruction in their way ahead. The idea is to never make decisions on limited data and remove any biases that may creep in while due diligence procedures are in progress.

Biases can have a significant impact on the business proposition. From unintentional privacy violations to unfairness in data, there could be hundreds of reasons. However, the primary goal is to remove every single bias and lead through a seamless approach.

Speed and Relevance (Find them before your competitors)

Speed is another cause of concern that needs to be addressed almost immediately so that the prospects do not miss a deal. Faster and more relevant decision-making eliminates all kinds of distractions and noises and allows companies to make quick decisions and get on with the rest of the process. The idea is to proactively approach the targets before the competitors come knocking.

That’s precisely why businesses are interested in programmatic acquisition – a strategy that gives data-driven recommendations and helps companies identify relevant options for acquisition. McKinsey outlines that more than 65% of the businesses that employ programmatic M&A outperform their peers.

Wrapping Up

Today, a modern and data-driven approach toward mergers and acquisitions helps generate better results for businesses. We’ve experienced how unique ecosystems that allow corporations and late-stage startups, investors, and allied parties to collect data-driven intelligence and produce actionable recommendations on strategic investments, acquisitions, acquihire, and partnerships can be game-changers. Leverage new data-driven acquisition opportunities with GrowthPal to transform specific acquisition data into decisions. Applying the right criteria based on purpose, it is possible to develop customized business merger and acquisition plans and fix the matchmaking barriers. Get in touch with us today!

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