A MERGER OR ACQUISITION can be a company’s defining moment. On the one hand, the right business combination, with good execution, can reposition the company and accelerate profitable growth, and shareholder returns, it can even change the game for the industry as a whole.
On the other hand, a bad deal – whether the failure is in the concept, the price, or the execution – can quickly destroy shareholder value in an otherwise healthy company.
Acquisitions pursued for strategic reasons are more likely to succeed for shareholders. Taking a proactive approach that includes full capitalization and post-deal implementation, Shefford pursues three evenly balanced and equally favored alternative strategies, including:
WHERE ACQUISITIONS ARE THE STRATEGY
A PORTFOLIO STRATEGY encompasses the development of an enterprise composed of multiple corporate entities and investments. These “holdings” or “portfolio companies” have usually been acquired. Shefford partners with the “corporate parent” that maintains their entities as separate businesses – seeking to add businesses to the portfolio and occasionally selling businesses from the portfolio.
These companies are a collection of companies. Although, in some cases they realize synergies among the holdings, the holdings remain separate entities. While there may be a range of value drivers for the individual companies in the portfolio, M&A is a core activity for a holding company. The holding company creates value for shareholders through acquisitions, divestitures, and, in some cases, through the role it plays in the management of the holdings.
VALUE IN COST SYNERGIES
DEFENDING YOUR TURF
IN A CONSOLIDATING INDUSTRY, the forces that are driving the consolidation will ultimately put smaller companies at a disadvantage unless they can defend some small segment of their market.
Consolidation opportunities can be classified as follows – based on the part of the value chain that offers the consolidation benefit:
Research and Development: Here, the synergies relate to the ability to better diversify the risks and optimize the development process across a broader research and development portfolio.
Operations: In operations, the major cost savings are usually found in purchasing scale, the elimination of redundancies, and consolidation of corporate headquarters.
VALUE IN REVENUE GROWTH
YOU CAN’T SHRINK TO GREATNESS
POTENTIAL RETURNS ARE BOUNDED by revenue. Growth in revenue releases that constraint. So, an expectation of strong growth in revenue represents substantially more value creation potential.
To look at the role of acquisitions in profitable growth, the following four generic vectors of growth must be examined:
In each case there would be a make verses buy decision.
M&A STRATEGY MUST advance the overall strategy of the company. Successful companies need a strategy for the type of asset they will acquire and how they add value. Sometimes the value is in the selection and stewardship alone; other times it is created in integration or in the ongoing growth and development; and sometimes the value will depend on future steps.
Shefford Capital Partners determines the role of M&A in the company in consideration of industry imperatives and the nature and the skills of the company management and then provides guidance on the development and execution of successful M&A strategies that incorporate sound deal logic in the context of strategy.
477 Madison Avenue
New York, New York 10022