The pace of M&As over the last two years has been astonishing. According to a report by Ernst and Young, global M&A activity hit an all-time high in the first six months of 2021, with deals worth more than $2.6 trillion — up from $926 billion year-on-year and surging past the pre-pandemic five-year average. But despite the traction, not all M&As have resulted in mutual success because of the sheer magnitude of the deals.
The realization seems to be setting in that opting for a series of small or moderately-sized deals via programmatic M&As instead can add the necessary value while also delivering better shareholder returns. However, the course to effective programmatic M&A is quite demanding. Read on to uncover the key challenges.
What Makes a Programmatic M&A Strategy Difficult to Execute
A programmatic approach to acquisitions has the power to create far more value than big-bang M&As. Offering the ability to create gains in excess total returns to stakeholders, this series of small deals around a unique theme also minimizes the level of risk organizations are exposed to.
Programmatic strategies can be a great solution to get your hands on the best talent, diversify your portfolio, and grow beyond boundaries. With global M&A deal value expected to total $4.7 trillion by the end of 2022, there is enough furore on the programmatic road. But executing a successful programmatic acquisition strategy isn’t a walk in the park. Let’s look at the key challenges:
1.Limited bandwidth to source deals continuously:
The lack of dedicated resources to source the best deals globally is a common challenge that comes in the way of building and executing a successful programmatic M&A strategy. The traditional Investment Banking-led model for getting leads is broken. Inevitably, most companies today are dependent on inbound leads; while there may be multiple leads, they may not be the best ones to go forward with. However, limited bandwidth makes identifying good deals from the bad impossible to achieve. Partial analysis, insufficient audit, and inadequate verification lead to a poor understanding of the nature of the deal and the risks involved while also impacting the quality of informed decisions.
2.Absence of data and intelligence on companies:
Most companies also only use secondary data to qualify deals, which causes them to let go of many good deals. Sometimes, a lot of data is hidden, and only comes out when you have private data from the sellers. The absence of the right data and intelligence negatively impacts programmatic decision-making while compelling them to target the wrong companies.
3.Lack of M&A pipeline:
Most Corp Dev or M&A teams are unable to build a sustainable & continuous M&A pipeline similar to Sales team’s lead generation pipeline for their acquisitions. As Programmatic M&A is based on the principle that you make multiple smaller acquisitions to stay ahead of the competition for your inorganic growth, it is sacrosanct that you focus on building your M&A pipeline just as much as you do on pursuing quality targets.
Slow pace in sourcing and closing deals can also impact the success of your programmatic M&A strategy. Often companies invest months in sourcing 1-2 good quality targets which is a very long time for sourcing & screening. Aim should be to get quality targets at a regular frequency of weeks and not months. Since good sellers generally end up getting multiple offers, if you want to be in a position where you can target the cream of companies, you need to be fast. Quick decision-making in the pre-M&A phase can also help you keep up with fluctuating inflation, economic uncertainty, supply chain constraints, and market demand.
In essence, many of these problems are linked to the inability of companies pursuing a programmatic acquisition strategy to create an apt M&A deal pipeline. Integral to the execution of a programmatic acquisition strategy is the ability to find enough potential acquisition candidates that tick all the strategic boxes and for whom all the relevant information is available to enable sound decision-making.
The Solution to Overcome Key Challenges
As global markets become increasingly unpredictable, taking the programmatic acquisition route offers a great way to strengthen the business, boost capability, and reach new audiences. But given the many challenges that act as hurdles in enabling an effective programmatic M&A strategy, organizations need to:
- Passively look for opportunities that can add value to the organization, and not just actively scout for them
- Create a robust pipeline of qualified leads that fit the strategic criteria for acquisitions
- Have clarity on business goals and investment requirements and identify the most suitable deals to invest in
- Carry out detailed and comprehensive due diligence to confirm pertinent information about contracts, finances, employees, and customers
- Scan the entire deal using a comprehensive database and market signals, including detailed data on the company, sector, business model, team, funding, etc.
- Leverage data-driven intelligence to generate actionable recommendations on acquisitions, acquihires, strategic investments, and partnerships to improve the likelihood of success
- Constantly monitor and track market trends and disruptions and make informed decisions based on unique business goals – thus reducing hunting, sourcing, screening, and shortlisting time
- Rely on a centralized platform that collects and stores all necessary data, processes, and conversations in one place
- Pick out the best business-centric talent to build a futuristic business model that propels the integrated organization into the future
If you want to maximize potential and drive growth, you need to make the right programmatic M&A decisions and align your business with emerging market forces. At GrowthPal, we rely on intelligent analytics to help our clients make informed programmatic acquisition partnership decisions. By making crucial deal data accessible to corporates and early and late-stage startups, we can help fintech, SaaS, IT, EdTech, Gaming and D2C companies establish a continual stream of transaction-ready companies and ensure enduring commitment, so your business can achieve sustained, long-term value.
Contact us today to overcome the many challenges that come in the way of programmatic M&A and allow us to use intelligent recommendations to build a personalized M&A strategy that’s aligned with your unique business goals and requirements.