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Mastering M&A Pipeline Management: Top Challenges (with Solutions)

Kison Patel
CEO and Founder of DealRoom
Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of DealRoom

When most executives are asked about the challenges of M&A pipeline management, their mind focuses on target search and deal initiation.

This simplified view of how M&A pipelines function overlooks the myriad challenges that exist in ensuring that companies on a shortlist make it the deal initiation stage.

Below, we look at some of the most common of these challenges.

1. Aligning M&A Strategy with Corporate Goals

An adage for dealmakers to remember is

"Not everything in strategy is an M&A deal, but every M&A deal is strategy."

A company’s corporate development team needs to create an M&A pipeline which is fully aligned with the company’s corporate strategy.

This involves looking at companies across a range of metrics to ensure value-generating transactions that fit with the company’s long-term vision and operational capabilities.

Related:

2. Sourcing Quality Deals

Finding the deals that fit a company’s corporate strategy is often easier said than done. Even when suitable target companies are identified, the challenge remains about whether the target is open to a sale, the valuation that its shareholders have set, and how a deal can and should be structured.

Beyond this, there are myriad other issues that will appear in the period which follows that will determine the outcome of the transaction (see next section).

Related:

3. Effective Due Diligence

Due diligence will help to identify and better understand the risks and opportunities within a target company. Some of these will be explicit - in the financial results, for example - while others will be implicit - ‘hidden’ within the target’s corporate culture.

This phase is where an M&A pipeline is transformed from being a long list of potential opportunities to a short list of real options for the buying company.

Free template: Complete 50+ Due Diligence Documents

4. Resource Allocation

When many hear ‘resource allocation in M&A’, they assume it refers to the paid consideration for target company, when in fact the phrase encompasses everything from understanding how much to invest in integrating the target company, how much budgets need to change to ensure value is generated from the deal, and how much extra resources (people, operational, etc.) will be required to ensure the target company reaches the goals set for it.

5. Integration Planning

The post-merger integration (PMI) phase is a prime example of where resource allocation is of prime importance.

As DealRoom is always at pains to point out, this should begin as soon as possible, ideally before due diligence has concluded. Although aligning corporate cultures tends to be the most challenging component of this phase, the integration team also has to contend with issues such as aligning different systems and processes.

Learn more:

6. Managing Multiple Deals Simultaneously

Most M&A deal pipelines involve several companies at different stages of transactions.

One thing that becomes apparent when deal participants use M&A pipeline management technology is that each deal in the pipeline is usually quite distinct from the others. However, one thing is for certain:

75% of deal teams waste valuable time going back and forth between platforms to manage multiple deals.

Deal management using DealRoom's pipeline software
Deal management using DealRoom's pipeline software

That is, some may be extremely open to a deal, others may be verging on hostile; companies with identical financial performance could have markedly different valuations.

This therefore presents another one of the challenges for M&A pipeline management.

Learn more:

7. Regulatory Compliance and Risk Management

As the previous bullet point alluded to, each deal is different. This also means that each deal’s compliance and risk circumstances will present different challenges.

On the surface, two firms may appear almost identical from a regulatory/compliance standpoint but look under the hood and differences soon emerge. Everything from supply chain risks to underestimated pensions liabilities has the potential to generate difficulties here.

8. Stakeholder Communication and Management

More companies equal more stakeholders. More stakeholders means increased requirements for communication and management. Users of M&A pipeline management technology quickly become aware of the amount of extra time spent dealing with these stakeholders becomes.

They include investors, employees, supply chain partners, and even regulatory bodies. Keeping communications in one place enables it to be effective and value generative.

Related:

9. Market and Economic Fluctuations

It should come as little surprise that market and economic fluctuations are one of the major challenges of M&A pipeline management. Changing market dynamics will affect companies differently.

The recent Covid-19 pandemic underlined how some companies can thrive in circumstances that bring others to bankruptcy (Netflix and WeWork being indicative).

Keeping an eye on these dynamics, with multiple deals in an M&A pipeline is not only a short-term challenge, but can also ultimately inform whether a deal should close or not.

10. Technology and Data Management

As mentioned in the bullet point on integration, companies operating on different systems create unique challenges within the M&A process.

Traditionally, this has involved moving from SAP to Oracle, for example. In recent years, the challenge has only grown with the advent of big data, and the importance of processing and storing that data.

Again, this complexity tends to grow at a rate which isn’t linear (i.e. two companies should generate in excess of twice the data), increasing the scale of the challenge for dealmakers.

When most executives are asked about the challenges of M&A pipeline management, their mind focuses on target search and deal initiation.

This simplified view of how M&A pipelines function overlooks the myriad challenges that exist in ensuring that companies on a shortlist make it the deal initiation stage.

Below, we look at some of the most common of these challenges.

1. Aligning M&A Strategy with Corporate Goals

An adage for dealmakers to remember is

"Not everything in strategy is an M&A deal, but every M&A deal is strategy."

A company’s corporate development team needs to create an M&A pipeline which is fully aligned with the company’s corporate strategy.

This involves looking at companies across a range of metrics to ensure value-generating transactions that fit with the company’s long-term vision and operational capabilities.

Related:

2. Sourcing Quality Deals

Finding the deals that fit a company’s corporate strategy is often easier said than done. Even when suitable target companies are identified, the challenge remains about whether the target is open to a sale, the valuation that its shareholders have set, and how a deal can and should be structured.

Beyond this, there are myriad other issues that will appear in the period which follows that will determine the outcome of the transaction (see next section).

Related:

3. Effective Due Diligence

Due diligence will help to identify and better understand the risks and opportunities within a target company. Some of these will be explicit - in the financial results, for example - while others will be implicit - ‘hidden’ within the target’s corporate culture.

This phase is where an M&A pipeline is transformed from being a long list of potential opportunities to a short list of real options for the buying company.

Free template: Complete 50+ Due Diligence Documents

4. Resource Allocation

When many hear ‘resource allocation in M&A’, they assume it refers to the paid consideration for target company, when in fact the phrase encompasses everything from understanding how much to invest in integrating the target company, how much budgets need to change to ensure value is generated from the deal, and how much extra resources (people, operational, etc.) will be required to ensure the target company reaches the goals set for it.

5. Integration Planning

The post-merger integration (PMI) phase is a prime example of where resource allocation is of prime importance.

As DealRoom is always at pains to point out, this should begin as soon as possible, ideally before due diligence has concluded. Although aligning corporate cultures tends to be the most challenging component of this phase, the integration team also has to contend with issues such as aligning different systems and processes.

Learn more:

6. Managing Multiple Deals Simultaneously

Most M&A deal pipelines involve several companies at different stages of transactions.

One thing that becomes apparent when deal participants use M&A pipeline management technology is that each deal in the pipeline is usually quite distinct from the others. However, one thing is for certain:

75% of deal teams waste valuable time going back and forth between platforms to manage multiple deals.

Deal management using DealRoom's pipeline software
Deal management using DealRoom's pipeline software

That is, some may be extremely open to a deal, others may be verging on hostile; companies with identical financial performance could have markedly different valuations.

This therefore presents another one of the challenges for M&A pipeline management.

Learn more:

7. Regulatory Compliance and Risk Management

As the previous bullet point alluded to, each deal is different. This also means that each deal’s compliance and risk circumstances will present different challenges.

On the surface, two firms may appear almost identical from a regulatory/compliance standpoint but look under the hood and differences soon emerge. Everything from supply chain risks to underestimated pensions liabilities has the potential to generate difficulties here.

8. Stakeholder Communication and Management

More companies equal more stakeholders. More stakeholders means increased requirements for communication and management. Users of M&A pipeline management technology quickly become aware of the amount of extra time spent dealing with these stakeholders becomes.

They include investors, employees, supply chain partners, and even regulatory bodies. Keeping communications in one place enables it to be effective and value generative.

Related:

9. Market and Economic Fluctuations

It should come as little surprise that market and economic fluctuations are one of the major challenges of M&A pipeline management. Changing market dynamics will affect companies differently.

The recent Covid-19 pandemic underlined how some companies can thrive in circumstances that bring others to bankruptcy (Netflix and WeWork being indicative).

Keeping an eye on these dynamics, with multiple deals in an M&A pipeline is not only a short-term challenge, but can also ultimately inform whether a deal should close or not.

10. Technology and Data Management

As mentioned in the bullet point on integration, companies operating on different systems create unique challenges within the M&A process.

Traditionally, this has involved moving from SAP to Oracle, for example. In recent years, the challenge has only grown with the advent of big data, and the importance of processing and storing that data.

Again, this complexity tends to grow at a rate which isn’t linear (i.e. two companies should generate in excess of twice the data), increasing the scale of the challenge for dealmakers.

Contact M&A Science to learn more

M&A Pipeline Template

Use this Excel template to keep track of individual deals in your pipeline.

Grab copy now

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