As the number of acquisitions decreases, now is the ideal time to evaluate past acquisitions and use the insights gained to make future M&A processes more successful. CFOs play a crucial role in developing a robust M&A playbook that evolves continuously based on lessons learned from the past.
Key Insights
- Foster Objectivity and Leadership Collaboration
When evaluating acquisitions, particularly less successful ones, it is crucial for the CEO and CFO to promote a culture of objectivity and collaboration. This prevents internal politics and blame-shifting from undermining the evaluation process. Engaging independent third parties with expertise can help ensure a fair and thorough assessment. - Take a Balanced and Integrated Approach
A successful evaluation should consider both quantitative and qualitative aspects. This includes comparing financial outcomes such as internal rate of return (IRR) and return on invested capital (ROIC) against initial expectations. Additionally, non-financial aspects like strategic alignment, governance, and the quality of integration should also be assessed. - Use Transaction Scorecards and Identify Recurring Patterns
For each acquisition, creating a scorecard highlighting both strengths and areas for improvement is useful. By analyzing this data, companies can identify recurring patterns and common challenges. Modern AI tools can assist in analyzing large datasets and provide deeper insights into these patterns. - Share Results and Apply Lessons to Future Processes
The findings from post-acquisition evaluations should be actively shared with key stakeholders, including the corporate development team, business leaders, and the board. This ensures that lessons learned are integrated into future acquisition processes, enabling the organization to continuously improve and extract more value from M&A activities.
Case Study: Application in the Healthcare Sector
An EY team conducted a comprehensive evaluation for a major healthcare company that had undertaken numerous acquisitions. The analysis revealed valuable insights, such as the need for improved collaboration between due diligence and integration teams and enhanced strategic alignment of investments. These findings led to the implementation of a consistent evaluation process for future acquisitions, improving transparency and trust between the CFO and the board of directors.
Recommendation
The current economic climate provides an excellent opportunity to review the capital allocation of past acquisitions and refine the M&A process to ensure success in future deals. CFOs should develop an M&A playbook grounded in lessons learned to create a continuously improving and adaptive organization.
Source:
Burkly, D., & McElhannon, J. (2024, April 23). 4 Keys to improve your M&A playbook, post-acquisition. CFO.
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