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How to tackle M&A cases?

Dear all,

I'm trying to come up with my own frameworks, however, with regards to MnA cases I struggle to highlight the most important aspects and logic behind it.

Any framework / logic suggestion very welcomed!

Dear all,

I'm trying to come up with my own frameworks, however, with regards to MnA cases I struggle to highlight the most important aspects and logic behind it.

Any framework / logic suggestion very welcomed!

2 answers

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Hi,

There are three types of M&A cases you may have:

  1. Commercial due-diligence of the target company
  2. Synergies calculation of two merging companies
  3. Integration of the 2 companies

Note also that it can be a mix of them

1. For Due Diligence you can use the following structure:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit (in case of a PE company):

  • Exit multiples
  • Exit time
  • Existence of buyers
  • Risks

2. For Synergies Calculation you can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Financial synergies - working capital, capital structure, tax
  4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  5. Total synergies potential in $, adjusted by risk (probability of failure)

3. Integration cases can be either about integrating the IT systems, different functions or changing the org structure. Always remember to start with clarifying the objective and the timing of the deal / integration

Good luck!

Hi,

There are three types of M&A cases you may have:

  1. Commercial due-diligence of the target company
  2. Synergies calculation of two merging companies
  3. Integration of the 2 companies

Note also that it can be a mix of them

1. For Due Diligence you can use the following structure:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit (in case of a PE company):

  • Exit multiples
  • Exit time
  • Existence of buyers
  • Risks

2. For Synergies Calculation you can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Financial synergies - working capital, capital structure, tax
  4. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  5. Total synergies potential in $, adjusted by risk (probability of failure)

3. Integration cases can be either about integrating the IT systems, different functions or changing the org structure. Always remember to start with clarifying the objective and the timing of the deal / integration

Good luck!

(edited)

Agree w/ Vlad

I'd add as a fourth category of possible case, especially in corporate finance-heavy consultancies a Valuation case, where it would be important to discuss the different valuation methods:

  1. DCF valuation
  2. Comparables
  3. Multiples valuation (various multiples: Sales, EBITDA, FCF, EBIT)

Agree w/ Vlad

I'd add as a fourth category of possible case, especially in corporate finance-heavy consultancies a Valuation case, where it would be important to discuss the different valuation methods:

  1. DCF valuation
  2. Comparables
  3. Multiples valuation (various multiples: Sales, EBITDA, FCF, EBIT)

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