Mergers and acquisitions often set out as grand strategic moves that Irish businesses undertake to achieve growth, enhance capabilities, and gain competitive advantages. However, their success hinges significantly on the ability to create value. Byron Smith of our Strategy team explains below.
KPMG has advised hundreds of businesses across Ireland on M&A, with our Ireland Strategy practice leading value creation activities. While financial considerations are crucial, the best outcomes for our clients often come from performing value identification due diligence, ensuring optimal resource utilisation post-deal, and leveraging the strengths each party brings to the table.
The importance of synergies
Successful M&A typically begin with a common goal, such as growth or market consolidation. The key to success lies in identifying and leveraging synergies, optimising operations, and enhancing the market position of the combined entity.
In Ireland, where the business environment includes both indigenous companies and multinational corporations (MNCs), creating value is essential for maintaining competitive advantage and achieving long-term success.
While M&A is more common between indigenous companies and MNCs, we have effectively used value creation methodologies to enable smaller enterprises to secure an equal "seat at the table" post-deal, despite their lower financial clout.
Challenges in achieving synergies
Synergies achieved through mergers and acquisitions can be operational, financial, or strategic, and ideally, a successful outcome includes all three.
- Operational synergies involve cost savings, improved efficiencies, and enhanced productivity.
- Financial synergies provide better access to capital, improved cash flow, and tax benefits.
- Strategic synergies expand market reach, enhance product offerings, and boost innovation.
In Ireland, leveraging these synergies in sectors like technology, pharmaceuticals, and financial services can significantly enhance performance. However, achieving these synergies is challenging. Globally, our firm has found that around 70% of mergers and acquisitions fail to meet their anticipated value, underscoring the need for meticulous planning and execution.
To fully realise the potential of their M&A, companies in Ireland must navigate regulatory frameworks, market dynamics, cultural fit, and identify inherent weaknesses early in the negotiation cycle.
Innovation as a driver of value creation
We've seen that synergies aren't just about matching capabilities; some of the most successful mergers and acquisitions involve an innovative company with limited capital partnering with a capital-rich company with minimal R&D. Recently, we helped a medium sized Irish industrials company in a merger with a UK multinational corporation on this basis.
Simply put – they had the ideas, the MNC had the finances. Such collaborations provide the necessary resources and capabilities for research and development, leading to new products, services, and technologies. This innovation-driven approach helps companies stay ahead of the curve and maintain a competitive edge in the market.
Effective governance and risk management
Aligning governance and risk management in Irish businesses post M&A is often challenging. The question of "what is my role now" is typically a decision for the acquirer. The larger entity's risk and quality processes are often assumed to be superior.
However, this assumption can lead to value erosion if not properly aligned. Larger stakeholders frequently cite agility and innovation as reasons for carve-off and merger, or for acquiring a smaller, efficient and innovative bolt on entity.
Often, the acquired entity can feel disadvantaged by the deal experience. This can be potentially fatal, as key management may become disenchanted and line workers may feel that their lifetime's work is being disregarded, often unwisely.
It's crucial to evaluate the approaches and capabilities of both parties, use peer benchmarking, and develop the best strategy without power plays. This type of analysis is essential for a successful value creation driven M&A strategy.
Peer benchmarking: looking outside to avoid mistakes
Frequently dealmakers overlook learnings from previous market M&A when approaching a deal.. Therefore, peer benchmarking is a crucial value creation tool. By comparing performance metrics with industry peers, companies can identify best practices, set realistic targets, and uncover areas for improvement.
This benchmarking goes beyond initial due diligence, setting early expectations for the financial, commercial, and operational performance of the post-deal entity. It ensures that the newly formed, theoretically less lean, entity remains focused on becoming more efficient and competitive to achieve its value creation goals.
KPMG's role in facilitating value creation
Our Strategy team helps companies achieve value creation in mergers and acquisitions. We provide comprehensive advisory services covering every aspect of the mergers and acquisitions process. From due diligence and valuation to integration planning and execution, our industry experienced, Ireland-based professionals offer tailored solutions that address the unique challenges of each transaction.
Our deep understanding of the local market dynamics, regulatory environment, and industry trends ensures that companies receive relevant and actionable insights.
Get in touch
If you have any queries about building value in your business, please contact Byron Smith of our Strategy team. We'd be delighted to hear from you.
