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Stephen Wise Blog

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M&A: Top Ten Drivers

Embarking on a strategy to grow revenue or cut costs via M&A acquisition is bold and risky. The failure-rate statistics for deals is not a pretty picture. It is not a leap to draw the conclusion from the high failure rate that the typical acquirer materially overestimates the synergy benefits that will accrue after close. Perhaps the blame for a too high valuation on synergy benefits is over-exuberance. However, I think this is the wrong inference.

I believe that under-estimation of the importance of the post-merger integration planning is the single greatest factor leading to this high failure-rate phenomenon. The preventative action is development of a robust post-merger integration plan that aligns stakeholders’ activities with the deal thesis.

Objectives, Measures, and Benefits

A critical first step to creating this plan is for leaders to communicate a deal thesis with clear success criteria. The objectives, measures, and benefits must be detailed and well defined. For example, if they are not tangible or they are vague, it is highly likely they will lose gravitas as they timeline moves forward. As a starting point, to creating a robust deal thesis, here are the top ten drivers of M&A acquisitions[1]

Top-Ten Drivers of M&A acquisitions

1.    Industry Synergy
Achieve economies of scale by buying customer / supplier, or competitor. Acquisition of a competitor is horizontal, and acquisition of a customer or supplier is vertical.

2.    Strategic Planning
Accomplish strategic goals more quickly and more successfully such as entering new markets or acquiring technology or people assets.

3.    Differential efficiency
Realize a return on investment by buying a company with less efficient processes and making them more efficient

4.    Inefficient Management
Realize a return by buying a company with inefficient managers and replacing them

5.    Market Power
Increase market share and ability to increase price/profit.

6.    Financial Synergy
Lower cost of capital by smoothing cash flow and increasing debt capacity

7.    Under valuation
Take advantage of a price that is low in comparison to past stock prices and/or estimated future prices, or in relation to the cost the buyer would incurs if it built the company from scratch

8.    Corporate Governance
Assert control at the board of directors’ level in an underperforming company with dispersed stakeholder ownership

9.    Tax Efficiency
Obtain a more favorable tax status

10.    Managerialism
Increase the pay and/or power of managers

STEPHEN D WISE

INTEGRATION PROFESSIONALS

DRAMATICALLY IMPROVE TRACTION


[1] Lajoux, Alexandra Reed (2019). The art of M & A : a merger, acquisition, and buyout guide. New York: McGraw-Hill Education.

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Those Incredible AI Flying Machines

About 120 years ago in Manhattan, Nikola Tesla demonstrated a boat he piloted from the edge of a pond. Apparently, the audience took it as more of a magic show then a technology demonstration.

Today start-ups are promoting flying vehicles that do not require a human pilot. These innovative companies are applying their products to improve productivity and profitability. The business case is easier to understand then the technologies involved – an AI enabled flying vehicle could work longer, faster, and more reliably on certain repeatable tasks then a drone with a human pilot.

A drone without AI is a device with sensors collecting data - a human pilot is still needed. A drone with hard-coded responses to given conditions (such as maintaining height given changing terrain) is fun but not equipped for demanding tasks.

AI enabled capabilities allow human-like performance in reasoning, problem-solving, and planning for specific tasks without ongoing human intervention. No one wants to look at thousands of images 24 X 7 in order to pick up anomalies. The ability to give the drone a general mission and specific tasks to be completed in a safe and reliable way opens the door for commercial applications.

Farmers could continually scout their fields to test for issues related to disease, irrigation, or infestation. For example, follow the crop furrows and identify sectors that require additional spraying. Energy companies could monitor their transmission lines and pipelines for early signs of damage. For example, do a high-speed pass monitoring for signs of encroachment or corrosion and a repeat detailed pass when certain warning signs are found. These are not new practises – but in the future, decisions can be made based on acquiring more complete data faster, and less expensively.

Tesla received a patent[1] for controlling his boat but did not achieve commercial success on that one. New high value enterprise applications for AI enabled flying machines are imminent. What is your company doing in order to participate?

Stephen D Wise

Integration Professionals

Dramatically Improve Traction


[1] Method of And Apparatus For Controlling Mechanism Of Moving Vessels Or Vehicles. Nikola Tesla of New York, N.Y Patent No. 613,809 (1898)

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Delivering Business Transformation Strategy

Michael Porter’s books on Competitive Strategy and Competitive Advantage led me to embrace Project Management. That is, I have frequently said, a company that invests in Project Management is making an investment in their competitive advantage. Less frustration delivering value, less disruption to teams, improved engagement, etc.

Porter’s Five Forces and the SWOT analysis are now inadequate as concrete underpinnings for strategy design. Strategy is still important, but the amount of change driven by disruption, innovation, and transformation means that the interpretation and implementation of Strategy – which occurs during the delivery – requires a high-touch feedback loop.

An increased importance in the strategy delivery does not mean that strategy design is less important – it means that executives must give equal personal priority and attention to designing the right strategy as to delivering.

Here are three key tips for executives to stay engaged in the delivery phase of business transformation strategy. Governance – Decision Making – Planning & Re-planning.

Governance – Build a governance structure that reinforces the accountability and responsibilities for the vision. Ensure the team is adequality resourced in terms of experience and availability. Review and address risks and interdependencies at the beginning and periodically and through the realization of accumulated benefits. Insist on a complete set of regularly reported metrics and milestones.

Decision Making - Move quickly to re-prioritize and remove roadblocks that are uncovered despite a lack of complete information or analysis. Accept changes to time and budget milestones based on new information from the working team.

Planning & Re-planning – The less time you have available – the more important it is to have a robust plan. Don’t forgo detailed planning, but in today’s business environment planning and re-planning must be rapid and agile. Documenting tasks, task owner, and interdependencies are as important as schedule and budget. Issues impeding success should be discussed regularly and recommendations to tweak the plan fed up to the executive team in order to ensure alignment and ongoing support.

Delivering strategy is like going on an expedition through a deep jungle. Every so often you will get to a hilltop and be able to asses how things went so far and what new landscape is coming in to view. An executive that spends time and money crafting the strategy needs to protect her investment by staying available and engaged for those hilltop moments.

Stephen Wise

Integration Professionals

Dramatically Improve Traction

cybersecurity stephen_wise

Have you had any recent security incidents that you are aware of?

According to the 2019 Data Breach Investigation Report, 43% of breaches involved the small and medium business segment. Gone are the days an internet firewall, PC antivirus, and backup is adequate. Agree? Today, in the face of emerging threats, security is complex.

Ransomware and phishing attacks can be let through by even the best anti-virus and anti-spam software. The risk is heightened if users have the same passwords across all accounts – successful attackers can then easy take your money and your files hostage. It is also very common for users to send confidential information unintentionally.

Governments and regulators are hard at work to create policy frameworks to guide business – yet staying up to date and onside with the patchwork of rules has its own challenges. PCI (Payment Card Industry Data Security Standard), GDPR (General Data Protection Regulation), PIPEDA (Personal Information Protection and Electronics Documents Act), HIPA (Health Insurance Portability and Accountability Act), FCRA (Fair Credit Reporting Act) all have some overlapping areas but varying objectives and severity of penalties.

The challenge for CEO/Presidents is that the type of risk and the preventive actions required are rapidly changing. Accountability for a cybersecurity breach sits at the top of the house and so should awareness of the threats and prioritisation of the defences. Here are four topics to be addressed:

  1. What defences do we have in place against cyber threats?
  2. How is our business data being protected from leaks?
  3. Who has access to our information?
  4. How are we compliant with the various regulatory frameworks?

If you have trouble answering one of these topics or if you have had an incident in the recent past, please reach out so that I can help point you in the correct direction.

Stephen Wise

Integration Professionals

Dramatically Improve Traction

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