Harve Light: M&A Strategies for Business Leaders to Drive Growth and Increase Profits – Smartsheet
Harve Light was quoted in Smartsheet’s article titled “M&A Strategies for Business Leaders to Drive Growth and Increase Profits.”
Several M&A experts predict that valuations are unlikely to go higher, especially if credit tightens.
“There is plenty of money on the sidelines, but I don’t believe it will drive multiples higher in general. The one area in which it might push multiples up is add-on acquisitions. Acquirers are generally willing to pay a higher multiple for businesses where they believe they can achieve significant cost savings,” says Harve Light, Managing Director of financial advisory firm Conway MacKenzie.
Poor leadership and mishandling of the integration phase can aggravate these challenges. Light of Conway MacKenzie says that the most common reasons for failure are incomplete due diligence, overvalued cost savings, and lack of complete integration strategies.
Acquirers can overlook critical operating areas during their due diligence process. “One example is an insufficient review and understanding of work in process and what really needs to be done to convert WIP to finished products,” Light explains. “Another example is a shallow understanding of future work that has been awarded. Take an auto supplier that has been awarded parts for a new vehicle launch. You must complete a deep review of capital expenditures, launch costs, and forecasted volumes,” she says.
Similarly, buyers are often overly optimistic in forecasting cost savings that they can reap from an acquired company. Beyond administrative efficiencies, which are relatively straightforward, it is challenging to predict other types of savings. “Operational/manufacturing cost savings are typically overstated due to unforeseen complexities in plant integration,” Light concludes.
Moreover, acquirers frequently do not build enough time or cost into integration plans, especially for technology integration, where extensive data cleaning may be necessary to combine systems, Light says.