In an active M&A year the number and value of transactions climb, and so does the number that never deliver the value predicted or live up to the business case. The studies on why are many. What interests me is the deals that do create excellent value for the acquirer, because they share a pattern: the capability was bought to fill a gap the strategy had already identified.
The gaps
As a strategy takes shape, gaps appear that must be filled for the goals to be reached in time: intellectual property and know-how, sales channels and networks, manufacturing platforms, logistics systems, key people. Buying a company is often the fastest way to close one. It is also the most expensive way to close the wrong one.
Before the target list
Build the internal plan with management and the board first. The prioritised markets where acquiring a capability has the strongest strategic rationale and the best business case. A detailed list of the capabilities required, with the cost and time to build organically against buying, and an honest assessment of whether an acquired capability will still work after integration. Only then a list of targets, with their financials and their fit against the criteria you have already written.
The question that gets skipped
Will the capability survive the purchase? Key people leave. Channels resist a new owner. A manufacturing platform tuned to one product mix fights another. The deals that create value answer that question before the offer, not after the close.
Where it sits
Tool four of the MOVE® system is advantage and future capabilities: for each priority product-market, which capabilities must be built, bought or stopped. A target list that comes from that page is a strategy. One that comes from a banker's call is a transaction.
Monday
For the last acquisition your company made, write the capability it was meant to deliver in one sentence. Then write whether it did. If either sentence is hard to write, the next deal needs a different starting point.
