In the middle of economic uncertainty, it’s tempting for companies to want to put M&A on the back-burner since “the future is uncertain”.
However, companies that are willing to adapt their M&A strategy, while of course keeping their antenna up for the macro situation, will be strongly positioned to come out ahead after a down cycle.
Here are a few strategies I’ve seen corporate acquirers begin to deploy.
1️⃣ Instead of going after just one or two riskier “transformative” acquisitions, spread risk through “programmatic M&A” (a term coined by McKinsey).
This approach becomes even more effective in uncertain environments.
See the link in the comments for more on programmatic M&A.
2️⃣ Refine the company’s M&A themes and approach to target selection.
A strategic analysis refresh may show that themes or pipeline targets that were a good bet earlier may not be so.
And newer, different targets may need to be added to replace the pipeline deals that get taken off the list.
3️⃣ Evaluate the company’s new capacity or “acquisition firepower” going forward
Analyze the company’s capital structure, as well as debt capacity, covenants, and rating criteria to decide if the company needs to focus on aggressively conserving cash, or can still do deals (and whether equity or debt is the right way to pay for deals)
4️⃣ Consider partnerships or co-investing with private equity and venture capital (that still have dry powder) to diversify risk and bring in better financial discipline.
5️⃣ Re-align with the P&L owners to properly re-prioritize growth through M&A vs. the time, resources, and budget needed to maintain organic growth
6️⃣ Develop different value propositions for different acquisition targets
Based on a target’s market position, different “pitches” may make sense – and the acquirer’s value proposition could range across the spectrum access to capital, a strong supply chain, and long-term customer relationships that allow cross-selling or existing investments in a strong operational or sales team.
Be sure to identify the angle that makes it most mutually attractive to do the deal, and be aware that this value proposition can shift over time.. especially in an uncertain economy.