Many growth strategy case studies eventually lead to M&A questions. For instance, companies with excess funds, searching for ways to grow quickly might be interested in acquiring upstream or downstream suppliers (vertical integration), direct competitors (horizontal integration), complementary businesses or even unrelated businesses to diversify their portfolio. The most important requirement for an M&A is that it must increase the shareholders' value and it must have a cultural fit even when the decision financially makes sense.
Analogous to making a purchase at a grocery store, M&A can be viewed as a "buying decision". In general, we know that a consumer first determines the "need" to buy a product followed by analyzing whether he or she can afford the product. After analyzing the first 2 critical factors, the consumer might look at long/short term benefits of the product. Applying similar logic in M&A cases:
When you are sure that it is an M&A case, proceed with the following analyses after structuring the case as discussed above:
Once it's clear why the client is interested in acquiring a particular company, start by looking at the industry the client wants to buy. This analysis is crucial since the outlook of the industry might overshadow the target's ability to play in it. For instance, small/unprofitable targets in a growing market can be attractive in the same way as great targets can be unattractive in a dying market.
Potential questions to assess are:
Use Porter's Five Forces as a suitable framework here. You should use it without ever mentioning Porter's name.
After analyzing the target industry, understand the target company. Try to determine its strengths and weaknesses (see SWOT analysis) and perform a financial valuation to determine the attractiveness of the potential target. You are technically calculating the NPV of the company but this calculation likely is not going to be asked in the case interview. However, having the knowledge of when it is used (e.g., financial valuation) is crucial. Analyze the following information to determine the market attractiveness:
Finally, make sure to investigate the feasibility of the acquisition.
Important questions here are:
You should now be able to evaluate the venture’s financial and qualitative attractiveness for the client. If you conclude that the client should go on with the M&A, make sure to structure your conclusions in the end. Your suggestions should also include: