Introduction
In the world of mergers & acquisitions (M&A), there’s been a lot of recent attention on what’s called taking a “programmatic approach” to pursuing M&A opportunities. And with good reason: companies who intentionally build high-performing M&A programs consistently outperform their peers across multiple measures.
McKinsey has written extensively on this topic and has produced some pretty compelling evidence to support this claim: for one, businesses who take a programmatic approach to M&A had a 65% chance of outperforming their peers. In fact, of the four main approaches to growth (large deal, selective, programmatic, and organic), the programmatic approach was the only one that returned positive total returns to shareholders (TRS) – the rest either lost value or broke even. Notably, this finding held true across multiple industries and sectors.
Like an elite athlete, creating a programmatic M&A approach requires vision, focus, and – above all else – profound discipline. In this article, I’ll define what a programmatic approach to M&A is and share some tips to help you build one for your business.
Defining the Programmatic Approach
So what does it mean to take a “programmatic approach” to M&A? Essentially, businesses that take a programmatic approach treat M&A as a core business function, systematically curating a portfolio of deals that are intentionally selected to build competitive advantage. This approach tends to result in a higher volume of M&A transactions that are individually smaller in size, evening out returns while mitigating risk.
But building a successful M&A program is about more than the number or size of deals – it’s about a comprehensive orientation and approach that is deeply aligned with broader business goals and integrated across functions. Companies with programmatic M&A programs share a few key principles in common:
The companies that use a programmatic approach create deal flows linked to their conviction in their corporate strategy, understanding of their competitive advantage, and confidence in their capacity to execute. They manage their growth strategies proactively. And their approach to M&A does not change, regardless of the success or failure of any single deal.
- They’re focused: Programmatic M&A programs have a strong “why” and a clear connection to the overall goals of the business, and tend to focus on just a few (one to three) core themes. This does two things: it helps ensure alignment with business capabilities and needs, and it creates a clear decision framework for analyzing opportunities.
- They’re proactive: Companies with programmatic M&A programs don’t sit around and wait for the next deal to fall into their laps. They are constantly asking “what assets exist in the market that can help me reach my goals?” and then proactively and intentionally pursuing those opportunities – regardless of whether they’re listed for sale yet.
- They’re resourced: Programmatic M&A programs are considered a critical business function. They have the attention of senior leadership (all the way up to the highest levels) and are appropriately resourced.
- They’re disciplined: Armed with a clear vision and strategic growth plan, programmatic M&A programs stick with this plan and put in the work to execute well (more on this last point below). Some deals will fail, others will succeed, but the long view is always in sight. Plan, execute, learn, repeat.
- They’re constantly learning: In a highly-functioning M&A program, each transaction is treated as an important learning opportunity that informs future deals and, in some cases, drives evolution in the company’s broader growth plan.
Discipline & the Compound Effect
Let’s revisit one of the points above: discipline. This is both the most critical tenet of a programmatic M&A program and the hardest to implement. The transformational power of M&A rarely comes after a single deal – it comes after two, three, four years of many successful integrations.
Think of an elite athlete. That 50-meter world record or perfect golf swing didn’t just happen – it was the product of decades of practice and thousands of early-morning workouts, repeating the same action over and over and over. Practice creates muscle memory which leads to success.
The same applies to M&A programs. Just as elite muscles are built by hundreds of thousands of repetitions in the gym, strong M&A approaches are built through disciplined processes that are repeated over and over again. After a series of these repetitions, we begin to see a flywheel effect: processes, systems, structures, and teams become more efficient, effective, and mutually reinforcing with each transaction. We call this the “compound effect,” and it is the secret sauce to programmatic M&A approaches.
Discipline in a programmatic M&A approach can look like:
- Creating repeatable processes and systems for M&A functions, from industry research all the way through integration
- Building strong frameworks, tools, and templates for decision-making and analysis
- Saying “no” to potentially exciting deals that are not aligned to your core business vision and goals
- Resourcing dedicated M&A expertise to your team, either by working with a seasoned advisor or building in-house capacity
Five Steps to a Programmatic Approach to M&A
Fully realizing the benefits of the compound effect requires patience. The payoff can take years (I typically advise clients that meaningful returns from an M&A program can take 2-3 years to realize). However, the returns can be transformational for your company and, perhaps more importantly, are much more likely to be sustained in the long run. So where to begin? If you’re up for the challenge, here are five key steps for building the right approach to M&A:
1) Define your why
The foundation of a smart approach is a strategic growth plan that clearly defines your vision for the future of your business. Rather than focusing simply on growth, this plan should articulate which new capabilities your company needs to increase your competitive advantage through multiple channels. Be bold, but also as specific as possible about this vision – this will help you with the next steps. Also, expect this plan to evolve over time. Ideally, your plan and investment thesis are strengthened by the learnings and feedback you glean from each venture you pursue (more on this below).
2) Develop your framework
Once you have a clear vision and purpose for your M&A program, you’ll want to get more specific about the capabilities, technologies, teams, or other assets you need to help you reach your goals. This is where the corporate development plan and investment thesis come in. Spend time developing a clear framework and set of principles for analyzing which companies have the assets you need and how you will assess fit and alignment.
3) Build your funnel
Here’s where the right approach really stands out. Once you have your vision and framework, begin proactively generating a list of companies who have the assets you seek. Don’t get too bogged down in details at this stage – you have plenty of time to fully assess opportunities during subsequent stages. And don’t limit yourself to “on the market” opportunities, either. Some of the strongest M&A deals have come through proactive outreach to off-market companies.
4) Execute with discipline
To be clear, there are actually a lot of steps in the “execute” phase – outreach, relationship building, creating a letter of intent, due diligence, and integration. But the key theme here is that you execute each of these phases with clarity and discipline. Holding your corporate vision as your north star and anchoring in your growth plan and framework, build repeatable processes and strong underlying systems that support your team in analyzing and pursuing aligned opportunities.
5) Learn & iterate
Every single M&A interaction – even if it never becomes a deal – is an opportunity to gain more information about the market, competitors, technologies, talent, and promising innovations that can increase your own competitive advantage. Take advantage of each of these learning opportunities, and use this information to refine (or just reinforce) your approach to M&A or simply your broader business practices. I find it’s most helpful if you actually take time to codify what you’ve learned in writing and share with your team.
Ready to get started?
To be sure, building a programmatic approach to M&A takes time, dedication, determination, and discipline. If you are interested in strengthening your existing M&A function, building a new one, or simply learning more about this critical part of your business plan, G-Spire can help you:
- Articulate a clear vision for growth
- Build a specific and actionable strategy roadmap
- Define and amplify your core competencies
- Develop disciplined processes and systems for M&A development & integration
- Codify learnings and create feedback loops to strengthen your program
About the G-Spire Group
The G-Spire Group helps entrepreneurs looking to grow through acquisition identify potential targets, negotiate with sellers and integrate the newly purchased business into their portfolio. To learn more, please visit: https://www.gspiregroup.com/