Book Review: The Art of M&A Strategy

Authors: Kenneth Smith and Alexandra Reed Lajoux

Publisher: McGraw-Hill – 348 pages

Book Review by:  Paiso Jamakar

There was a time when a company acquired another in order to squash its largest competitor, to increase its share of the market, to increase profit margins by buying products at lower prices based larger volume purchases (as a result of acquiring the customers of its acquired company) and for a host of other reasons.

There was a time when it made sense to a company’s owners and management to be acquired or become part of another firm (when it did not have the cash, capital and credit facility) in order to generate more sales (with a larger customer base as a result of a merger) and larger operating income (as result of lower product costs based on volume-based pricing) that could be used to increase salaries and other forms of compensation.

But in today’s business environment, it makes sense to embrace the strategy of mergers and acquisitions (M&A strategy) from the outset itself to get a competitive advantage in the marketplace. The question these days seems to be no longer whether a company should incorporate M&A strategy to grow its business. The question now is what is the best and fastest way to merge with, acquire or be acquired by another company for the largest overall benefit of everyone involved?

This book – The Art of M&A Strategy: A Guide to Building Your Company’s Future Through Mergers, Acquisitions and  Divestitures – was written to help executives understand how the M&A strategy works, moving it away from a dark, mysterious place to the light of understanding and clarity.

The authors have gathered much knowledge about M&A, experience in having it disseminated through three other published books besides this one in a series, and hands-on experience in this business specialty.

Kenneth Smith has been a strategy consultant for more than 25 years, working with McKinsey & Company initially and later with SECOR Consulting. He is also an educator, being an associate professor at the University of Guelph in Ontario, Canada and dean of the executive programs in its College of Management and Economics.

Alexandra Reed Lajoux is the chief knowledge officer of the National Association of Corporate Directors. She has had over 30 years of experience in business information, having served as editor of several publications and having been author or coauthor of the McGraw-Hill series of four Art of M&A books.

This book is neatly organized into three parts. Part I lays out several possibilities that a company can engage in (and the reasons for each) such as growing its business volume(s) in the business (es) it is currently in, expanding its portfolio of assets that are growing in value, and-or acquiring other companies to create a broader and more diverse range of sources of business income for times when one or several sectors turn sour.

Part II discusses the entire mergers and acquisitions strategy and its details, as well as what part M & A plays in your overall business strategy. It takes into account your company’s position in the business or market you are in, assess your situation to help you decide whether you want to buy another company or sell yours. This part also shows you how to look for and evaluate potential acquirers or acquirees, and partners.

Part III instructs readers on how to make M & A part of an imperative of sustained corporate growth program, with the advent of global competition wherein overseas companies have taken large market shares of US domestic industries, as well as in international markets. This part also explains the details relating to post-merger integration, the need for certain core competencies, and if, when and how to use advisors.

There are 12 chapters in the book that shed light on various topics within M & A strategy.

Chapters 1 through 4 grouped under Part I – How M & A Creates Value in Strategy – deal respectively with: building and managing a portfolio of businesses; consolidation: value in cost strategies; expansion strategy: value in revenue growth: and real options in M & A.

Chapters 5 through 8 in Part II, cover, respectively: M & A in strategic planning; searching, screening and selection; to be a buyer or a seller; and the director’s role in M & A.

Chapters 9 through 12 in Part III discuss respectively: global industry restructuring; the role of post merger integration in M & A strategy; building a sustainable M & A program with the help of advisors; and M & A as a core competence.

This book provides six appendices that enhance its value to users. The first one discusses the reasons for the success or failure of major deals. The second provides a list of suggested readings in strategy and strategic planning methodologies. The third appendix shows a hexagonal “wheel of opportunity”/“fit chart” with illustrative Delphi scoring.

The fourth appendix gives the reader information sources and tips for target screening. How to find buyers for your business, for example? It suggests practical things like joining a trade association in the relevant industry, going to trade shows, creating your own list of potential buyers of businesses such as yours.

Here you will find another important (perhaps imperative) suggestion: review required disclosures with a qualified CPA so your books are in proper order and “squeaky clean” with no questionable numbers.

To gather information on your prospective buyer if it is a publicly-traded company, study sources of financial data on public firms such as Value Line and reference books such as the Thomas Register. If it is a private company, Hoover’s, owned by Dunn and Bradstreet, and Harris Infosource can provide broad, but usually not detailed, information on revenues and other figures.

The authors of Art of M & A Strategy – Kenneth Smith and Alexander Reed Lajoux – provide rare new information as well as methods, tips and tools that take the mystery and fear out of buying a company, selling yours or merging with another one. It’s good, value-added and very useful reading.