Mark Sirower is an internationally recognized expert on M&A and author of the best-selling book, The Synergy Trap: How Companies Lose the Acquisition Game, and co-author of The Synergy Solution: How Companies Win the Mergers & Acquisitions Game.
A Principal with Deloitte Consulting LLP and a leader in the Mergers & Acquisitions practice, Mark has more than 25 years of experience advising on hundreds of deals for corporate and private equity clients. He advises on all things M&A, including strategy, growth and innovation, target screening, commercial and operational diligence, valuation, investor relations, pre- and post-close merger integration, and governance issues.
An adjunct M&A professor at NYU’s Stern School for the past 30 years, Mark has also taught at the Wharton School of Business and is a frequent media contributor and guest speaker at global M&A conferences.
- A 20% to 50% premium is usually paid for synergies (the average is 30%) and is paid up-front, which creates a new set of problems for the acquirer.
- Acquisitions are different from other corporate development programs because you pay up-front, pay a premium, have a high exit cost, and acquisitions are very expensive to unwind, as opposed to other options.
- Most acquirers are highly reactive, as opposed to strategic and proactive. A well-defined M&A strategy is critical to ensuring acquisitions are successful. Many acquirers take a hodgepodge approach to M&A. Successful acquirers know exactly what they want, how they are going to create value, and establish a watch list of companies they want to acquire. For example, there might be 500 companies in your universe, and you make a watch list of 20 deals to pursue.
- M&A must be considered as carefully as your overall corporate strategy. Each deal represents a slightly different strategy, requiring different planning and diligence strategies. Ask yourself – what does doing this deal allow us to do that we could not have done without doing this deal?
- The more you look, the more you find. The more you find, the more you learn. The more you learn, the more you test your strategy. Your strategy should be dynamic, constantly evolving, and tested.
- Many aspects of acquisitions are disconnected, such as strategy, diligence, and integration. This disconnect is one of the primary reasons acquisitions are unsuccessful.
- Acquisitions are measured based on shareholder returns adjusted for peer-performance (relative total shareholder returns), both on the announcement date and over time. Approximately 60% of deals are met with negative market reactions and 40% with positive market reactions. The market’s reaction is a surprisingly accurate predictor of the success of an acquisition. Acquisitions that deliver have wonderful returns. It’s not that deals fail – poorly designed and executed deals fail.
- Assumptions in the acquirer’s valuation model become promises that must be fulfilled post-acquisition. The acquirer must deliver on their promises after the acquisition.
- The purpose of commercial diligence is to test hypotheses. You should test the assumptions of your valuation model in due diligence. If you try to boil the ocean in due diligence, you will lose sight of the most important components of your strategy that need to be tested.
- You must consider the cost of integrating a company.
- You can assess the strategic intent of a company based on the acquisitions they make over a period of time.
- How are synergies paid for up-front? [2:00]
- Does there always need to be synergy to create value? [3:05]
- What did you notice in the real world with the realization of synergies? [5:40]
- How do you define a successful acquisition? [7:00]
- How do you isolate one variable, such as an acquisition, to properly measure performance? [8:35]
- What is the success rate of acquisitions? [10:50]
- What is the average premium that is paid for an acquisition? [15:40]
- Why aren’t most acquisitions successful? [17:00]
- What is the M&A cascade? [18:15]
- How does M&A compare to other corporate development options? [19:20]
- The M&A cascade, continued … [20:20]
- Why aren’t many components of the M&A process integrated? [21:15]
- What is an example of a reactive acquirer? [22:40]
- Which companies do an excellent job with acquisitions? [25:30]
- How do you narrow down a large universe of choices? [27:00]
- Why do some acquirers have a difficult time narrowing down their choices? [27:50]
- To what extent should there be cohesion among acquisitions over a period of time? [31:15]
- Do companies share their acquisition strategies publicly? [31:40]
- How important is due diligence to the success of an acquisition? [34:15]
- What’s the difference between commercial (CDD) and operational due diligence (ODD)? [35:40]
- How do you test the hypothesis of your strategy in due diligence? [37:00]
- Is there a difference between how PE firms and strategic buyers conduct due diligence? [40:25]
- What do you think most companies overlook in due diligence? [41:00]
- How do most companies approach valuation? [43:25]
- What should companies focus on during due diligence to ensure their valuation is sensible? [48:10]
- What do the most successful companies do to ensure integration is a success? [49:10]
- Why is speed so important during integration? [51:30]
- Strategy vs. execution [58:00]
- How seriously do most companies invest in integration? [1:01:20]
- What does integration mean to you in a nutshell? [1:03:00]
- When should integration planning start? [1:04:10]