The World of Programmatic M&A
Most organizations looking to strengthen their market position know the importance of engaging in an M&A. But in the world of acquisitions, bigger isn’t always better! Although large, big bang deals can prove to be extremely transformative and make (or break) the performance of any organization, undertaking a series of small or moderately-sized deals can play a massive role in building businesses and adding the market cap. Since a successful M&A goes far beyond detailed due diligence, getting the deal documented and closed and addressing post-closing disputes via programmatic M&A can deliver better shareholder returns.
Programmatic M&A delivers a strategy for systematically building new businesses, services, and capabilities and empowers businesses to engage in a series of small deals around a specific theme – instead of a large one. When done right, it can help strengthen competitive advantage and enable organizations to set achievable growth expectations – even as market conditions fluctuate.
Programmatic M&A is known to be a proven strategy across sectors and geographies. Take the case of WPP for instance. The advertising giant has, since its inception, undertaken major acquisitions to achieve scale in its industry. From design companies to digital marketing companies, online shopping sites to project management firms – the company’s strategy of growth via acquisitions has enabled it to strengthen its foothold in the market while constantly growing its audience and profit share.
Similarly, German digital and periodical publishing company Axel Springer has experienced tremendous growth and success through programmatic M&As. Over the years, the German publishing house has acquired several print and digital media companies, spending billions of dollars in investments. This series of small yet impactful acquisitions has made the company’s portfolio a central asset in the dynamic and increasingly diverse media market.
So, what doors does programmatic M&A open for pandemic-struck companies? How can organizations that take the programmatic M&A path achieve sustained success in today’s unstable and unpredictable era?
According to a study by McKinsey, of the top 100 companies in the Global 2,000, 59 had built programmatic M&A capability and witnessed success in reshaping their portfolios and surviving. The same study also found that companies that rely on programmatic M&A achieved a median excess shareholder return of 2.1%, outperforming peer groups by at least 20% in total shareholder returns.
Let’s look at some benefits of programmatic M&A:
- Improves agility: Companies that build their M&A capability through programmatic M&A are known to be extremely agile, adapting quickly and easily to changes in business and market conditions. In a highly volatile era, such agility not only boosts performance over time but also reduces the probability and impact of market risk.
- Streamlines budget: Programmatic M&A makes it easy for business leaders to allocate the capital needed to execute successful deals. Instead of accumulating a large budget for one massive deal, organizations can focus on different M&A themes and deliver on their corporate strategy – without burning a hole in their pockets.
- Strengthens M&A blueprint: When small deals have to be made, business leaders put all their effort into clearly defining their M&A blueprint. A strong blueprint goes a long way in creating conviction, so when economic downturns do occur, leaders do not step back or hesitate on going ahead with their strategy.
- Improves the ability to invest in and test multiple small business areas: The lower mid-market is extremely fragmented, with many companies serving small geographic areas or business segments. These types of companies are prime candidates for consolidation by programmatic M&As as they improve the ability to invest in and test multiple small business areas – before going ahead with a Big Bang merger.
- Ensures sufficient capacity and capability: With labor shortage at an all-time high, programmatic M&A also ensures organizations have the sufficient capacity and capability to successfully close a deal. This includes having enough budget, the skillset to integrate assets, and the vision to come up with new products and enter new markets using the acquisitionas a launchpad for transformation.
- Leverages the power of partnership: Programmatic M&A leverages the power of an organization’s existing relationships and partnerships, allowing them to build on their core competencies and create opportunities for long-term inorganic growth. Since they are less risky than organic growth strategies, they prove to be reliable in times of economic turmoil.
The Challenges That Programmatic M&A Brings
As organizations continue to reel from the impact of the pandemic – and now the effects of the war – entering into strategic partnerships with like-minded companies is proving to be a great way to get access to the best talent, diversify the product portfolio, expand reach, drive economies of scale, achieve a competitive advantage, and more. According to a recent report, global M&A deal value will total $4.7 trillion by the end of 2022.
But with the volatility of the business landscape at an all-time high, enterprises are finding themselves struggling to overcome challenges brought about by the global recession, market upheavals, and reduced consumer spending. Although programmatic M&As provide an effective tool for corporate restructuring in an uncertain era, they also bring about many hurdles that need to be crossed with utmost planning and precision:
- Carrying out comprehensive due diligence on prospects across various aspects of an evolving business doesn’t come easy.
- As interest rates continue to plummet, M&A-bound organizations are extremely vulnerable to attracting debt.
- The lack of a goal-oriented approachmakes it difficult for organizations to tie deals and close transactions with specific business goals.
- Dealing with inflation, unpredictable consumer demand, labor shortages, and supply chain constraints requires in-depth preparation.
- Insufficient insight into critical deal data not only delays M&A decision-making but also impacts its accuracy.
- The risk of data security and integrity is extremely relevant in the context of programmatic M&As – especially with cross-geographic acquisitions that have to take stringent government regulations into consideration
Market uncertainties have wreaked havoc in the business landscape. But as the dust settles, many organizations are taking the M&A route to build the business, boost capability, and reach new audiences. In today’s volatile era, engaging in programmatic M&As can help in aligning your corporate strategy with shifting market forces and trends. By creating a continual stream of small transactions and ensuring ongoing commitment, your business can generate sustained, long-term value – not once but continuously!
But like any M&A, programmatic M&A is not without challenges. If you want to make the right acquisition decisions, you need to unearth actionable intelligence based on current trends, analytics, and market insights. As an expert in the field of programmatic M&A, GrowthPal can deliver personalized guidance and recommendations based on your business goals, so you can make informed decisions and close deals in record time.
Kickstart your programmatic M&A journey today with GrowthPal and minimize the time and effort spent in hunting, sourcing, screening, and shortlisting organizations for your M&A strategy. Connect with us today to build your personalized M&A pipeline!