Because of the extensive upfront strategy and financial due diligence needs and multi-year post-merger integration/divestiture opportunities, it's often been said that as goes the M&A market so goes consulting demand. If Schaffer Consulting's M&A practice leader Rick Heinick is correct, there's reason to think the current recovery will have legs. Consulting One on One recently sat down with Heinick to learn more about M&A consulting demand.
Consulting: Based on what you're seeing in the marketplace, how is M&A tracking?
Heinick: It's clear that access to capital has improved and mergers are on the increase. We're seeing a big surge in M&A activity in life sciences—pharmaceutical companies buying biotech companies, biotechs buying smaller biotechs and then selling to pharma companies. companies. There's a lot of activity across industries.
Consulting: What's driving or inhibiting M&A activity?
Heinick: What we're seeing in this economy is strong risk aversion. But even with that anxiety, companies are aggressively making vertical acquisitions. There's a lot of activity by companies looking at buying a company from within their own supply chain and bringing it in-house to leverage it. What we're not seeing is much buying outside a company's vertical space.
Consulting: What kinds of companies are likely to be the most active buyers?
Heinick: GE is back on a buying spree. It has somewhere in the neighborhood of $30 billion to spend over the next few years. Airlines are certainly active. I'd expect to see more like the United/Continental and Southwest Airlines/Air Tran combination. Financial services companies are being forced to focus on their core business and will begin to shed side, but still quite substantial, businesses.
Consulting: What other trends are you observing?
Heinick: After interviewing 40 companies about their M&A experiences, we found that they tend to hire proportionately more consultants for cross-border deals than for acquisitions within the same geography. This is not only drastically increasing buyers' costs, but they're also losing out on learning and cultural development training by outsourcing so much of the M&A work. By using consultants as surrogates for their own people, they aren't using this opportunity to teach their own people how to do work in the new company. Of course companies need advisors to provide assurance on cross-border deals, but without significant representation by the client on the M&A team, there's not a lot of knowledge transfer. Otherwise, when the consultants leave they may not know how to be successful. We find that when the buyer and seller have more of their own people involved in integration planning and implementation, it's not only less costly but it teaches the staff of both companies to work together in partnership.
Consulting: What steps are you taking during the M&A advisory process to address clients' risk aversion?
Heinick: There are two things we do—and it's they way we've done it for 25 years. First, we start with a very clear, written merger intent memo. We make sure all of the leadership of the acquiring company agree on what they expect to be realized within the first 100 days, the first year, the first two years, etc. On one sheet of paper, we outline what they want to achieve strategically, financially and operationally. Post-merger integration can be a long-term process, but we've found success in breaking it down into a series of 100-day projects. This short-term focus enables us to tackle the top priorities ASAP. For example, we make sure any talent issues are decided very quickly—you can't generate the results you want if there's questions about who is leading, or might lead, what practice. First and foremost, the goal should be to build confidence in shareholders and staff. And there's no better way to do it than to get everyone working together and building a united firm culture right away.
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