Multi-deal mastery: Leveraging portfolio management strategies for M&A transactions
Applying the portfolio process to five common M&A challenges to enhance your M&A integration tool kit
Managing one M&A integration at a time is hard. Managing multiple integrations is a challenge for even the most experienced acquirers.
- For corporate development, the biggest challenge is deal value realization.
- For functional leaders, the key concerns are around burnout for employees who are moonlighting integration duties and compounding operational complexity due to incomplete integrations.
- For customers, the primary impact may be poor customer service.
As of March 2024, Morgan Stanley predicts a 50% M&A surge as confidence builds: “We think that 2021–23 saw far less activity than fundamental and macro factors would suggest, supporting a multiyear catch-up.” As investments ramp up, so does the likelihood that you will need to manage simultaneous transactions.
Luckily, companies can take a page from a more established field: portfolio management. Portfolio management is considered a more established process within companies due to its comprehensive and strategic nature. It not only helps in managing current investments but also strategically positions the company for future growth and stability. This contrasts with managing multiple transactions, such as in M&A, which might be periodic or strategic but is not a continuous and overarching function like portfolio management.
In this blog post, I will outline five common challenges that you, as an M&A leader, may face when managing multiple transactions and how to leverage an established portfolio process for maximum success.
Challenge #1: Poorly defined intake, prioritization, and transition to the business
Companies typically do not have established acceptance criteria or a robust intake and prioritization process sequencing M&A integration projects. Without proper processes in place, companies run the risk of taking on too much and employees are left scrambling to fill the gaps.
How to apply portfolio management best practices:
- Adjust organization operating model and intake process to account for and prioritize M&A activity.
- Develop delivery and resourcing model projections for M&A activity.
- Decide where to separate versus combine integration efforts to increase efficiency/value.
- Clearly define when the integration team’s involvement beyond reporting is complete and can be handed off to the business teams.
Implementing portfolio management best practices streamlines M&A integration by establishing structured processes for intake and prioritization, ensuring effective resource allocation and strategic alignment. By defining clear endpoints for integration teams and optimizing the separation or combination of efforts, these strategies facilitate smooth transitions to business operations and enhance overall efficiency.
Challenge #2: Difficulty maintaining focus on deal objectives
Managing multiple M&A transactions simultaneously can lead to teams losing focus on the strategic objectives of each deal due to the complexity and resource demands involved. This lack of focus can result in strategic drift, where decisions diverge from original goals, potentially leading to poor integration, missed synergies, and ultimately, diminished value from the acquisitions.
How to apply portfolio management best practices:
- Establish an overarching governance model across deals at a portfolio level.
- Align M&A transactions with the company’s overarching strategic objectives.
- Document deal value drivers for each individual deal and determine if the value drivers are dependent on activities of another deal.
- Understand and address cross-deal dependencies, priorities, and risks.
By establishing an overarching governance model and aligning M&A transactions with the company’s strategic objectives, these portfolio management best practices ensure a focused approach to managing multiple deals simultaneously, maintaining alignment with original goals. Documenting deal value drivers and understanding cross-deal dependencies further help in prioritizing tasks and mitigating risks.
Challenge #3: Lack of transparency
Lack of transparency in managing multiple M&A transactions often results from inadequate tools to oversee and coordinate activities across all deals, leading to siloed planning and decision-making. This fragmentation can obscure risks and constraints, resulting in inefficiencies and missed opportunities for synergy, ultimately compromising the success of the acquisitions.
How to apply portfolio management best practices:
- To effectively manage multiple M&A transactions, companies can leverage portfolio and program management data through centralized data systems and analytical dashboards. These tools provide real-time insights and comprehensive overviews of all deals, enhancing decision-making, optimizing resource allocation, and improving risk management across the M&A portfolio.
- Consider employing a deal management platform, such as DealRoom, that aggregates data across multiple deals to provide consolidated value, risk, and task management.
By leveraging portfolio and program management data through centralized systems and analytical dashboards, companies can overcome transparency challenges in managing multiple M&A transactions, ensuring real-time insights and cohesive oversight.
Challenge #4: Inefficient resourcing and operating models
Not having an effective operating, resourcing allocation, or budget tracking model can lead to uncertainty for your employees and delivery delays for your customers.
How to apply portfolio management best practices:
- Ensure availability of dedicated M&A resources and that operating models are optimized for M&A.
- Prioritize and allocate resources based on the strategic importance and potential impact of each transaction. Prioritization may involve allocating dedicated teams, funding, and management attention.
- Establish a comprehensive M&A budget that outlines the financial resources allocated to each M&A transaction, and allocate budgets strategically based on the significance and potential impact of each M&A transaction.
By ensuring dedicated M&A resources and optimizing operating models specifically for M&A activities, companies can eliminate resource allocation ambiguities and preempt delivery delays. Establishing a comprehensive, strategically allocated M&A budget based on the strategic importance of each transaction further clarifies financial resource distribution, promoting effective and timely project execution.
Challenge #5: Lack of flexibility and adaptability
When companies adopt a rigid approach to handling multiple M&A transactions, they risk losing deals due to slow responses in adapting their strategies. Similar to how portfolio managers recalibrate investment strategies in response to market fluctuations, companies need to remain agile, ready to pivot their M&A approaches in light of new opportunities or unforeseen obstacles across their transaction portfolio, ensuring sustained growth and competitive advantage.
How to apply a portfolio management best practice:
- Remain agile and adaptable to changing market conditions, business dynamics, and strategic priorities: This may involve revising deal terms, renegotiating agreements, or exploring alternative transaction structures.
- Implement continuous monitoring: Establish mechanisms for continuous monitoring of market and regulatory changes that could affect ongoing and future M&A activities. This proactive approach allows companies to anticipate shifts and adapt their transaction strategies effectively.
- Encourage cross-functional collaboration: Promote collaboration across different departments such as finance, legal, and operations to ensure a holistic view of each transaction. This integration fosters diverse perspectives and can lead to more flexible and innovative problem-solving during M&A processes.
By remaining agile and adaptable, continuously monitoring market and regulatory changes, and encouraging cross-functional collaboration, companies can effectively respond to new opportunities and challenges in managing multiple M&A transactions. These best practices ensure that organizations can pivot their strategies swiftly, maintain strategic alignment, and enhance their ability to capture value, thereby supporting sustained growth and securing a competitive advantage.
Moving forward with confidence and an enhanced tool kit
In summary, the principles of portfolio management can play a key role in enhancing your tool kit for handling multiple M&A transactions with success. Through the application of portfolio management best practices, you can maximize the overall value creation from your M&A activities by building structures that maintain focus on strategic objectives, optimizing resource allocation to ensure M&A readiness, using platforms to assist with risk management, and preparing your team for the agility that M&A transactions often demand.
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