Manufacturing M&A: Lessons for 2021 and Beyond

Relaxed credit, cash-rich balance sheets, and an improving post-pandemic economy are igniting a fire of M&A in the manufacturing sector. This is good news, since successful mergers are critical to the global economy and the bottom line of individual companies. But history has taught an important lesson: bad mergers erode value, and may actually undermine long-term success. It can be difficult to get mergers to realize the promised synergies, and integration is notoriously difficult.

While key players in deals often dismiss failed deals as outside of their control—due to chance, fate, or just plain bad luck—the reality is that the factors most likely to destroy a deal are likely well within your control.

Valuation Matters

Overvaluation is the enemy of success. Do not place unflinching trust in the valuations offered by external advisors such as investment banks. Success fees, rather than a desire to see the deal succeed, often drive these excessive valuations. You need a keen understanding of the metrics used to value your company. Don’t let your emotional reaction to a high valuation color your ability to think critically.

Get Specific About Synergies and Their Execution

Transformational deals are often little more than a CEO’s itch to do something, anything. Don’t assume a big deal is going to change everything just because you want it to. For a deal to truly offer synergistic value, you must be able to identify the specific synergies you hope to achieve. And then—this is the difficult part—devise a plan for making these synergies a reality. Integration planning must be a part of the dealmaking process—not an afterthought that only begins when the deal closes.

Open Communication

Mergers can be a time of immense anxiety for your staff, your customers, and stakeholders in the community. Lack of communication makes this anxiety worse, and gives the rumor mill time to fill in the gaps—usually with negative information that undermines the merger. As you move into the deal, develop a communication plan that offers a clear, consistent message and allays any fears. Identify a single point person for questions about the deal, and empower this person to speak empathetically and with specifics.

Knowing What You Don’t Know

Decisions about M&A are among the most important you will ever make. Unfortunately, these are also the decisions that most corporate leaders have very little experience handling. Your board, too, has probably only worked on one or two deals. This is dangerous because it’s easy to overestimate your knowledge and make risky decisions without even realizing you’re doing so. The right deal team can help fill in knowledge gaps, alert you to pivotal moments in the decision-making process, and ensure you end up with a deal you’re happy with. Don’t go it alone. DIY deals are often more costly, and are always more likely to fail.


Posted on

August 6, 2021