Archive for the ‘M&A’ Category

What is New Market Entry and how do companies win?

Tuesday, July 3rd, 2012

Welcome to our latest blog theme for July, and thank you from all the Partners and Employees at Thinking Dimensions- especially to all of you who have taken the time to write in and comment on what information you are looking for and what has been particularly helpful.

In July, our focus theme is

New Markets: How to Drive Global Growth and Predictability of Earnings Despite Periods of Economic Instability

This topic is on the top of mind for many of our clients as they work to ensure shareholder performance even if they are operating in markets which are turbulent and difficult to predict.

Today we will look at “What is New Market Entry and how do companies win?”.

New Market entry frequently involves taking a company’s current products and/or services and offering them in a new market- whether that be a channel, geographic area, or new market segment.

Why enter New Markets?  Companies typically enter new markets for one of four reasons:

1) A customer or customers are asking for support in a new market (very common theme within B2B suppliers)

2)Growth in current markets has reached saturation level and/or margins are declining

3)A large scale opportunity has been identified relative to the strategic direction for growth

4)Competitors are entering a market and presence is required for global presence/positioning (the least valid reason of the 4)

While entering new markets is both exciting and taxing for the organization, there are a brief series of criteria which should be met for a company to proceed:

  • How well is the planned new market to enter aligned with our company strategy?
  • How will the competitive advantage we enjoy in our current markets transfer to the new market?  Impact?
  • Which resources (and capabilities) are required for successful entry into the new market? Are they available?
  • What are time, cost, and performance characteristics of the new market entry project?
  • What barriers to entry and risks need to be addressed prior to entering the new market?
  • What is the ROI (or similar measures in each company)?  How predictable is it?

In working with clients entering new markets we have seen some excellent success stories including:

  1. A global automotive supplier who were able to significantly increase both their revenues and net income by opening a large-scale manufacturing, engineering, and service presence in SE Asia (previously just offering manufacturing)
  2. A European manufacturer who entered into the North American markets and was able to command both price and margin premiums for high quality niche products
  3. A North American B2B supplier who through acquisitions were able to provide superior offerings in the EMEA region

 

While there are many examples, they all share a few characteristics in common including:

A) A clearly articulated strategy which identified the areas of growth, included competitive intelligence, and a few select priorities

B) Realistic understanding of their competitive advantages and the relative value in the new markets

c) Support for investment including the board, President, and CEO/COO to ensure the opportunity was maximized

d)A development of the required capabilities and resources to create sustainable success

New Market Entry is not easy- there are many examples of not only success however also failure- if your leadership teams start by answering the questions raised in this short blog today in an objective format- this will be the first step to performing as well outside your “home” market segments as you do within.

 This blog post was authored by Scott B. Newton, Partner, Thinking Dimensions

 

 

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Posted in Implementation, M&A, New Market Entry, Strategy |

Why Acquire at all?

Friday, May 18th, 2012

One area we are asked about frequently is acquisitions- yes or no?

Why to acquire?

The decision for an acquisition is not easy- it is one alternative to developing capabilities organically however can be costly and also difficult to integrate.

So what are the steps required to approve an acquisition?

1- Know your strategy and specifically your competitive advantage.

2- Understand how the target will assist you in meeting your highest priority strategic emphasis goals

3- Test and validate the real NPV of the acquisition and measure its sustainability

4- Calculate the costs of integration in terms of not only money but also the internal resources required to achieve objectives

5- Recheck steps one through four

Once an acquisition has been approved- still be prepared to say no and walk away.  Your decision was based on a series of assumptions relative to the corporate strategy you have developed- if those assumptions cannot be verified it is always an alternative to close down the negotiation.  The costly acquisitions we have observed which do not work are typically due to a desire to proceed forward even though the DD was not validated- a perfect example of sunk costs considered as going concerns.

This post was authored by Scott Newton, Partner, Thinking Dimensions

 

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Posted in M&A |

The Key Importance of making Strategic Assumptions visible early in the M&A process

Thursday, May 3rd, 2012

One of the areas of business which rarely gets much press coverage is “Failed Mergers”.  The time and effort spent however on discussions and negotiations which then do not lead to a partnership, joint venture, or outright acquisition consume considerable resources of the Firm.  Why do the negotiations break down?

A frequent reason for the failure in the negotation stage is that Strategic Assumptions were not clearly communicated- that is, made visible, early in the discussion stage of the process.  The way a company looks toward the future determines who the potential “right” partner will be- as every organization does not see Assumptions in the same way, we recommend the following:

1) Communicate clearly the 4 or 5 (not more) Strategic assumptions which will have the biggest impact on the industry and the company.

2) Share the assumptions with the potential partner, and agree on a combined list (if you want to know how to generate Strategic Assumptions, please read the excellent blog post of May 2nd  from my colleague Tim Lewko).

3) Jointly with your acquistion teams- review and agree on the financial impact the assumptions will have on the “New” merged company.  This is the time to be blunt and honest- not over optomistic or enthusiastic- realistic.

4) Compare the financial impact to the budgeted synergies- what is the new outcome?

5) Review the updated business case and decide if there is still a valid logic to the acquisition, merger, or partnership.

The entire process will take a maximum of one working day- and the value received provides an immediate ROI- there is no need to proceed if the business case is no longer valid.  A number of companies have also- unfortunately- decided to proceed with their M&A plans even after realizing the synergies would not create the initial projected return.  The question is why a company would do that- the root cause typically due to thinking along the lines of “we have already come this far in the process and cannot stop now or the market will punish us”.  This easy first step serves as a protection against such thinking.

This blog post was authored by Scott Newton, Partner Thinking Dimensions



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Posted in M&A, Strategy |