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Flevy Management Insights Case Study
Merger & Acquisition Strategy for Defense Contractor in North America


There are countless scenarios that require Deal Structuring. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Deal Structuring to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, KPIs, best practices, and other tools developed from past client work. We followed this management consulting approach for this case study.

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Consider this scenario: The organization, a mid-sized defense contractor in North America, is facing challenges in structuring and executing deals effectively.

With recent government policy changes encouraging consolidation in the defense sector, the company is seeking to acquire smaller competitors to enhance capabilities and market share. However, they are encountering difficulties in deal valuation, due diligence, and integration planning, which have led to prolonged negotiation phases, increased costs, and missed opportunities.



Upon reviewing the situation, initial hypotheses might include a lack of a standardized approach to deal structuring, insufficient market intelligence informing the negotiation process, and potential misalignment between the strategic objectives of the organization and the targets it pursues.

Strategic Analysis and Execution Methodology

The organization can benefit from a tailored 5-phase Deal Structuring methodology, which aligns with processes employed by leading consulting firms. This structured approach ensures thoroughness and strategic alignment throughout the deal process and can significantly improve the success rate of mergers and acquisitions.

  1. Preparation and Scoping: This phase involves defining the strategic objectives, assessing the internal readiness for M&A, and identifying potential targets. Key questions include: What are the strategic goals driving the M&A activity? Is the organization's culture and structure prepared for integration? What are the criteria for target selection?
  2. Due Diligence and Valuation: Conduct comprehensive due diligence on the shortlisted targets and perform valuation analyses. Key activities include financial, legal, and operational assessments. It's critical to understand: What are the deal breakers? Are the valuation models aligned with the organization's strategic objectives?
  3. Deal Structuring and Negotiation: Develop the deal structure, negotiate terms, and execute the Letter of Intent (LOI). The focus is on: What is the optimal deal structure to maximize value and minimize risk? How can negotiation be leveraged to align the deal with strategic and operational goals?
  4. Integration Planning: Prior to deal closure, devise a detailed integration plan. Key analyses revolve around cultural compatibility and operational synergies. It's essential to ask: How will the entities be integrated from a cultural and operational standpoint? What are the key risks and mitigating actions?
  5. Closure and Post-Merger Integration (PMI): Finalize the transaction and implement the integration plan. The emphasis is on achieving the strategic objectives set out at the beginning. The critical question is: How will success be measured and what adjustments are necessary to realize the anticipated synergies?

Explore best practices on Post-merger Integration.

Learn more about Post-merger Integration Due Diligence Deal Structuring

For effective implementation, take a look at these Deal Structuring best practices:

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Fund Distribution Waterfall Model with Carried Interest Calculation (Excel workbook and supporting Excel workbook)
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Deal Structuring Implementation Challenges & Considerations

The methodology outlined above is designed to ensure a seamless transaction and integration process. However, executives often express concerns regarding the alignment of such methodologies with the fast-paced and dynamic nature of the defense sector. Adapting the approach to fit the unique context of the organization while maintaining its robustness is key.

Expected business outcomes include enhanced market position, increased operational efficiencies, and improved financial performance. Specifically, organizations often see a 20-30% increase in market share and a 15% reduction in operational costs post-integration.

Potential implementation challenges include cultural misalignment, retention of key talent post-acquisition, and maintaining business continuity during the integration phase.

Deal Structuring KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.


Without data, you're just another person with an opinion.
     – W. Edwards Deming

  • Deal Closure Rate: to assess effectiveness in concluding negotiations.
  • Synergy Realization Rate: to measure the successful capture of planned synergies.
  • Employee Retention Rate Post-Merger: to evaluate how well talent is retained during the integration process.

For more KPIs, take a look at the Flevy KPI Library, one of the most comprehensive databases of KPIs available. Having a centralized library of KPIs saves you significant time and effort in researching and developing metrics, allowing you to focus more on analysis, implementation of strategies, and other more value-added activities.

Learn more about Flevy KPI Library KPI Management Performance Management Balanced Scorecard

Implementation Insights

Through the implementation of a structured Deal Structuring methodology, it's been observed that organizations with a clear strategic vision and robust due diligence processes are more likely to succeed in M&A activities. According to McKinsey, companies that regularly review their M&A strategy and pipeline opportunities are 1.6 times more likely to report successful acquisitions than those that do not.

Additionally, the importance of cultural due diligence cannot be overstated. A study by Deloitte indicates that cultural issues are the most significant barrier to successful integration, with 30% of respondents citing it as a primary challenge.

Deal Structuring Deliverables

  • M&A Strategic Plan (PowerPoint)
  • Target Evaluation Report (Excel)
  • Detailed Due Diligence Checklist (Word)
  • Integration Roadmap (PowerPoint)
  • Post-Merger Integration Review (PowerPoint)

Explore more Deal Structuring deliverables

Deal Structuring Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Deal Structuring. These resources below were developed by management consulting firms and Deal Structuring subject matter experts.

Deal Structuring Case Studies

One notable case study involves a leading aerospace and defense company that implemented a similar Deal Structuring methodology. By doing so, they were able to streamline their M&A process, resulting in a 40% faster deal closure rate and achieving 25% higher synergy targets than industry benchmarks.

Another case study from a global defense technology firm highlights the critical role of integration planning. Post-acquisition, the organization realized a 30% increase in operational efficiency through the early identification and execution of key integration initiatives.

Explore additional related case studies

Aligning Strategic Objectives with Acquisition Targets

Securing acquisition targets that align with strategic objectives is paramount for the success of any M&A activity. The methodology must include a stringent target selection process that evaluates potential acquisitions against the organization's long-term strategy and objectives. This involves a rigorous assessment of how a target's products, markets, and technologies fit within the acquiring firm's portfolio and whether they will contribute to achieving strategic goals.

According to BCG, companies that acquire in line with their corporate strategy enjoy a median annual total shareholder return almost 5 percentage points higher than those that do not. The alignment ensures that each acquisition is not just a financial investment but also a strategic enhancer, propelling the company towards its envisioned future state.

Learn more about Corporate Strategy

Maximizing Value in Negotiations

Maximizing value in negotiations is not solely about the final price but also about the terms and conditions that can affect the value post-acquisition. Experienced negotiators focus on the entire deal structure, including payment terms, earn-outs, and clauses that can protect the buyer from unforeseen liabilities. By understanding the seller's motivations and pressures, buyers can structure a deal that is advantageous for both parties while safeguarding their interests.

Accenture research shows that 53% of executives report that their last deal failed to generate expected value, with poor negotiation strategies cited as a contributing factor. A well-structured negotiation process that is informed by thorough due diligence can significantly increase the likelihood of a successful deal.

Integrating Different Cultures Post-Merger

Cultural integration is often the most overlooked aspect of M&A, yet it is one of the most critical factors for long-term success. Developing a cultural integration plan that begins before the deal closes and continues through the post-merger phase is essential. This plan should address communication, leadership styles, and operational practices to ease the transition for employees and maintain productivity.

Deloitte's studies reveal that 33% of M&A transactions fail to achieve their intended synergies due to cultural clashes. To combat this, successful organizations invest in cultural assessments and integration programs that pave the way for a unified corporate culture.

Learn more about Corporate Culture Leadership

Ensuring Business Continuity During Integration

Business continuity during the integration phase is critical, as operational disruptions can lead to financial losses and damage to customer relationships. A comprehensive integration plan should include detailed risk assessments and contingency plans to ensure uninterrupted operations. Leadership plays a crucial role in guiding the organization through the change while maintaining focus on day-to-day operations.

According to PwC, companies that prioritize maintaining core business functions during an integration are 1.8 times more likely to achieve their intended deal value. Therefore, it's essential to manage the integration process without losing sight of the ongoing business needs.

Learn more about Disruption

Additional Resources Relevant to Deal Structuring

Here are additional best practices relevant to Deal Structuring from the Flevy Marketplace.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Increased market share by approximately 25% post-acquisition, aligning with strategic growth objectives.
  • Reduced operational costs by 15%, meeting the anticipated cost reduction targets.
  • Achieved a deal closure rate of 80%, indicating effective negotiation and deal structuring processes.
  • Synergy realization rate reached 70%, reflecting successful capture of planned synergies.
  • Employee retention rate post-merger stood at 85%, highlighting effective talent retention strategies.
  • Encountered challenges in cultural integration, with some operational disruptions reported during the integration phase.

The initiative to standardize the deal structuring and execution process has yielded significant positive outcomes, notably in market share growth and operational cost reductions, which directly align with the organization's strategic goals. The high deal closure and synergy realization rates underscore the effectiveness of the due diligence and negotiation strategies employed. However, the initiative faced challenges in cultural integration, leading to some operational disruptions. This suggests that while the structured approach to M&A was largely successful, there was an underestimation of the complexities involved in merging different organizational cultures. The reported challenges in cultural integration and the associated operational disruptions indicate that more attention could have been given to developing a more robust cultural integration plan. An alternative strategy could have involved earlier and more comprehensive cultural assessments, coupled with tailored integration programs designed to address identified cultural gaps.

Given the results and insights from the implementation, it is recommended that the organization continues to refine its M&A strategy with a particular focus on enhancing cultural integration processes. This could involve establishing a dedicated cross-functional team responsible for cultural due diligence and integration planning, ensuring that cultural alignment is considered as critical as financial and operational synergies. Additionally, investing in leadership development programs that prepare leaders to manage the complexities of integrating teams post-merger could further mitigate cultural clashes and operational disruptions. Finally, conducting a post-implementation review of each acquisition to gather lessons learned and best practices will be crucial for continuous improvement in future M&A activities.

Source: Merger & Acquisition Strategy for Defense Contractor in North America, Flevy Management Insights, 2024

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