{"id":10286,"date":"2022-01-11T06:57:30","date_gmt":"2022-01-11T11:57:30","guid":{"rendered":"https:\/\/flevy.com\/blog\/?p=10286"},"modified":"2022-01-10T11:20:46","modified_gmt":"2022-01-10T16:20:46","slug":"capabilities-driven-mergers-acquisitions","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/capabilities-driven-mergers-acquisitions\/","title":{"rendered":"Capabilities-driven M&A"},"content":{"rendered":"

\"\"Mergers and Acquisitions (M&A)<\/a> generally do not produce the outstanding results that they are envisioned and purported to provide.\u00a0 Some companies in certain industries, however, demonstrate consistent success when it comes to M&A.<\/p>\n

A constant question across all industries, as far as M&As are concerned, pertains to the factors that differentiate organizations with successful histories.\u00a0 The magic ingredient in the success of these companies is their Corporate Strategy that utilizes Capabilities as the source for inorganic Growth.\u00a0 Capabilities-driven M&A<\/a> have managed to raise shareholder value for the acquirer despite the tough years since the economic crisis of the 2000s. \u00a0The majority of other inorganic Growth<\/a> attempts produced a loss of value.<\/p>\n

Companies employing the Capabilities-driven Strategy were recompensed with deals that had a Compound Annual Growth Rate (CAGR) average of 12 percentage points greater in shareholder return compared to M&A deals by other acquirers in that very industry and region.<\/p>\n

Particular industries, for instance Information Technology and Retail, demonstrated a bigger effect. However, all industries displayed a steady, noticeable, Capabilities Premium in M&A.\u00a0 Capabilities-driven Strategy<\/a> is exceptionally beneficial in M&A transactions where, frequently, time window is narrow and the risks elevated.<\/p>\n

Capabilities Systems are defined as 3 to 6 reciprocally strengthening, distinguished Capabilities that are structured to hold up and drive Organizational Strategy, integrating people, processes, and technologies to create something of value for customers.<\/p>\n

Setting apart likely M&A success factors is accomplished more easily by separating successful deals by their declared Intent consequently, capturing the dominant view regarding purpose of each deal.<\/p>\n

Intent can be classified into 5 categories: Capability Access Deals, Product and Category Adjacency Deals, <\/strong>Geographic Adjacency Deals, Consolidation Deals, and Diversification Deals.<\/p>\n

There is a lot of talk about Fit during M&A<\/a> discussions.\u00a0 Fit does not mean introducing an ostensibly linked product or service, plugging a gap in a category, or moving in a new geography\u2014such sorts of acquisitions are frequently unsuccessful.<\/p>\n

Fit relates to unity, the benefit that ensues when Capabilities of a company fit mutually into a system, lining up to its market position, and employed to its complete array of products and services.<\/p>\n

Deals when cross-categorized by their Capabilities System Fit, fall into following 3 categories:<\/p>\n

    \n
  1. Enhancement Deals <\/strong><\/li>\n
  2. Leverage Deals <\/strong><\/li>\n
  3. Limited-Fit Deals<\/strong><\/li>\n<\/ol>\n

    \"\"<\/a><\/p>\n

    Let us delve a little deeper into the 3 categories.<\/p>\n

    Enhancement Deals<\/strong><\/h2>\n

    Enhancement deals enable the acquiring company to include new Capabilities so as to close gaps in its present Capabilities System or counter an alteration in its market.<\/p>\n

    Nearly 2\/3rd<\/sup> of the deals studied\u2014in a 2011 study spanning 8 sectors\u2014used Capabilities to good effect, either by way of Enhancement or Leverage.\u00a0<\/strong><\/p>\n

    Leverage Deals<\/strong><\/h2>\n

    Leverage deals are where the acquirer makes use of prevailing Capabilities System in their company to handle incoming products and services, customarily augmenting the acquired company\u2019s performance.<\/p>\n

    Leverage deal are frequently low-risk deals that may not require the acquirer to alter anything concerning its inhouse Capabilities System to make it work.\u00a0<\/strong><\/p>\n

    Limited Fit Deals<\/strong><\/h2>\n

    Limited-fit deals are deals where the purchasing company generally ignores Capabilities. \u00a0Normally such deals provide a purchaser with product or service that need new Capabilities.<\/p>\n

    Interested in learning more about Capabilities-driven M&A?\u00a0 You\u00a0can download\u00a0an editable PowerPoint on Capabilities-driven M&A<\/strong> here\u00a0<\/a>on the\u00a0Flevy documents marketplace<\/a>.<\/p>\n

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    \u2013 Roderick Cameron, Founding Partner at SGFE Ltd<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

    Mergers and Acquisitions (M&A) generally do not produce the outstanding results that they are envisioned and purported to provide.\u00a0 Some companies in certain industries, however, demonstrate consistent success when it comes to M&A. A constant question across all industries, as far as M&As are concerned, pertains to the factors that differentiate organizations with successful histories.\u00a0… Capabilities-driven M&A<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":10293,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[85,81],"tags":[2804,2807,2800,1513,2806,76,2810,2809,315,2805,2811,2812,1849,2803,2808,2802,2801],"class_list":["post-10286","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-organization","category-strategy","tag-capabilities","tag-capabilities-systems","tag-capabilities-driven-ma","tag-capabilities-driven-strategy","tag-compound-annual-growth-rate-cagr","tag-corporate-strategy","tag-enhancement-deals","tag-fit-for-growth","tag-growth","tag-inorganic-growth","tag-leverage-deals","tag-limited-fit-deals","tag-ma","tag-ma-factors","tag-ma-fit","tag-mergers-and-acquisitions","tag-mergers-and-acquisitions-ma"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/10286","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=10286"}],"version-history":[{"count":7,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/10286\/revisions"}],"predecessor-version":[{"id":10296,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/10286\/revisions\/10296"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/10293"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=10286"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=10286"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=10286"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}