Reality check your M&A assumptions
Market entry or expansion through M&A - so-called inorganic growth - is a calculated risk many of our clients take as a quick route to sometimes very dramatic market share gains. Often appealing when taken at face value, acquisition growth expectations are frequently trimmed after the deal, as layers of complexity emerge.
The benefits of a well-considered acquisition backed by Commercial Due Diligence (CDD) are well-proven by examples such as Google’s purchase of Android in 2005, for an estimated token consideration of USD50 mn. This relatively minor outlay resulted in Google capturing the greatest global presence in smartphone operating systems, with over 80% of a market worth tens of billions of USD annually.
Balancing such success stories is the indisputable fact that M&A has an "abysmal" failure rate, according to Harvard Business Review with ~80% of acquisitions failing to realise their expected gains. More often than not, focusing on potential top-line financial gains and glossing over an inevitable culture-clash are the key factors responsible for these failures. In other words, not being diligent about your Commercial Due Diligence.
The risks involved can be categorised as:
- Pre-deal external market-related risks
- Post-deal integration and cultural risks
CDD mitigates the former, allowing the buyer to 'take five' and check that the target company's position in the market, brand reputation and its future potential are indeed as strong as they appear to be.
GGM's approach to Commercial Due Diligence
Our approach to CDD provides an objective, third-party quantitative and qualitative assessment of the target company in its market environment, based on accurate data and reliable insights gathered by our in-country consultants.
The output is a structured analysis covering:
- Market position
- Brand reputation
- Customer and partner perceptions
- Earnings potential
- Strategic strengths and weaknesses
Aside from informing decision-making about a potential acquisition, these data and insights translate into useful valuation premium and discount factors and often provide crucial negotiation ammunition.
See clearly where the opportunities and risks lie, and ultimately whether or not to proceed with the acquisition.