“Strategy is a commodity, execution is an art.”

–        Peter Drucker

The past few months have not been kind to M&A driven growth strategies.  Pharmaceutical giant Pfizer, citing changes in U.S. Treasury Department guidance on tax inversions, has backed away from a proposed $160 billion deal for Allergan.  Cleantech company SunEdison stumbled into bankruptcy after the financial innovations that the company had been lauded for were revealed to be overly problematic.  Yahoo has been forced to acknowledge that the signature acquisition during CEO Marissa Mayer’s tenure, that of Tumblr for $1.1 billion, has not lived up to expectations.  And Pharmaceutical company Valeant has seen its M&A dependent, low R&D strategy unravel in a wave of accounting issues.

M&A is hard, and companies with considerable resources in terms of management, advisory talent, and capital still struggle to realize the promise of deals.  Why do they pursue them anyway?

In the simplest terms, M&A represents a siren song to frustrated stakeholders.  The natural constituency for M&A is imposing:

–  Leadership teams facing a moribund low-growth future

– Board members wrestling with a thorny strategic situation

– Advisors seeking a viable catalyst for change, on which to advise

And in opposition?  The challenging realities that serve as an undertow for all M&A transactions:

– Strategy.  M&A is a tactic, not a strategy.  Companies should resist the urge to simplify their strategy into “buy the competition and get bigger”.  M&A could very well play a part, sometimes a big part, in a comprehensive strategy, but absent that strategy M&A activity risks becoming undisciplined.

– Due Diligence.  The most effective guard against a value-destroying deal is to not enter into one.  Making the investment in due diligence to ensure that prospective acquisition candidates are as advertised, and ensuring that issues and challenges are understood at the outset, is vitally important.

– Integration.  Potential is one thing, realizing that potential is quite another.  Too many companies assume that the hard part in M&A is the deal, and that integration will come easily.  Such is not the case.  Companies that succeed in M&A are companies that devote considerable resources to planning and integration.

Regardless of the mix of organic and transaction-driven growth a company targets, leadership teams and their advisors should always approach business from a standpoint of humility.  There is an unavoidable “fog of war” aspect to the competitive landscape, and every initiative carries with it a number of risks, both known and unknown.  In order to maximize the impact of M&A, companies need to invest heavily in pre-transaction due diligence and post-transaction integration.  Buying companies may be hard, but wringing value out of those companies is even harder.

About the Author:

David Johnson is an expert in enterprise value maximization and has served as interim manager or financial advisor on over $5 Billion of distressed middle market transactions.  He can be contacted at: or 312-505-7238.