M&A: If you want success, get the due diligence right

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M&As have come a very long way in recent years. M&A deals continue to be on the rise – 2015 saw the value of mergers and acquisitions hit a record global high of £2.79tn and the upward trend is projected to continue throughout 2016 and beyond as confidence improves across boardrooms worldwide.

But according to recent Harvard Business Review research, about 70 per cent to 90 per cent of acquisitions fail to deliver on planned value. To put things in perspective, 2015 alone saw close to $4.7tn in declared deals with the average size of deals being $125m. With M&A activities seeing close to a 27 per cent average annual growth, there is lot more riding on a need to succeed than it ever was.

From fuelling competitive advantage and increasing market share, helping new product partnerships to enter new markets and even create new service models – M&A’s have become the new reality in today’s business landscape.

Read more about M&A deals:

• Essential tips to execute an M&A deal with a manufacturing firm
• Asian businesses offer strong M&A opportunities for British companies
• How to avoid an M&A nightmare

Get the due diligence right

It is imperative that a strategic move like an M&A is supported by a thorough due diligence. It goes without saying that potential buyers will perform financial due diligence in order to value the deal and determine their bid strategies. But experience suggests that bosses who have performed proper supply chain due diligence as a part of their M&A strategy tend to have an 80 per cent more chance of success.

Though there are no standard rules to carrying out a due diligence, a standard process should have four goals:

(1) Strategic outlook: Why the merger – (growth / capital efficiency)? How the supply chain is expected to be affected by this merger?

(2) Current baseline: What is the state of processes, technology and skill set in both the supply chains?

(3) Benchmarks: How do the two supply chains compare with the best in class and their peers?

(4) Way forward: What opportunities might be possible in terms of cost optimisation and growth?

Having worked with many M&A scenarios over the past years, experience dictates that using proper supply chain diagnostics can contribute to its success and that employing them at every stage of the process can help to avoid potential pitfalls.

A three-step process to understanding supply chain logistics can be found on the next page.

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