Executing Strategic M&A in Today's Market

Today, the M&A landscape is rapidly evolving, and the new regulatory environment presents a unique set of challenges and considerations that practitioners must understand to increase chances of success. With the heightened focus on scrutinizing large companies and cross-industry moves, strategic M&A requires a nuanced approach to maximize success and minimize risk. In this article, Todd Henrich, SVP Head of Corporate Development at Booking Holdings, discusses their best practices for better alignment with market conditions and regulatory frameworks.

“You can get into trouble if you start relying on M&A as critical to your strategy… M&A is inherently difficult. I firmly believe that the vast majority of M&A is bad for buyers.” - Todd Henrich

Aligning M&A with Corporate Strategy

In a complex and often unpredictable environment, successful companies view M&A as a tool—not the entirety of their strategy. Rather than relying solely on acquisitions to drive growth, organizations should use M&A to support their existing strategic objectives.

For instance, one company centered its acquisitions around a “connected trip” vision for the travel industry, looking to complement its core offerings with ancillary services. By setting a clear strategic focus before identifying targets, M&A activity can enhance the business without overstretching resources or introducing unnecessary risks.

Be adaptive to Regulatory Constraints

Today’s regulatory landscape demands an agile and adaptive approach to M&A. Authorities are scrutinizing transactions more rigorously, especially in cases where market leaders seek to expand into new sectors. The decision to block the acquisition of a flight service, despite the potential consumer benefits, exemplifies the shifting rules around non-horizontal mergers.

Regulatory delays and unexpected decisions are becoming the norm, meaning companies must be prepared to pursue alternative strategies, such as commercial partnerships, if a full acquisition doesn’t get regulatory approval.

Prioritize Long-Term Partnerships 

Given the complexities of today’s M&A market, some companies are finding value in establishing strong partnerships as a viable alternative to acquisitions. For instance, when regulatory roadblocks prevented an acquisition, a business continued its partnership with the target company, maintaining a collaborative relationship while preserving strategic alignment.

This approach not only mitigates the regulatory risk but also keeps growth options open without the added integration costs and operational disruptions an acquisition might entail.

Focus Due Diligence and Cultural Compatibility

A common theme among successful M&A practices is rigorous due diligence that goes beyond numbers and market trends to evaluate cultural compatibility and operational alignment. For example, some companies walk away from deals when they identify a misalignment between their objectives and those of the target’s management.

M&A is likened to a marriage: both parties need to be aligned on long-term goals, or the relationship will likely sour under pressure. By investing time in understanding the management team’s vision and values, acquirers can ensure smoother integration and sustained value post-acquisition.

Factor in Integration Costs and Operational Disruption

M&A deals often come with hidden costs, notably the demand on management’s time and focus. A dedicated integration team can help bridge gaps between business units, aligning everyone on what’s needed to make the transaction successful.

Companies should consider not only the immediate financial impact but also the opportunity cost associated with management’s shift in focus during the integration period. The integration team plays a critical role in assessing these costs upfront and ensuring everyone is prepared for the added responsibilities that come with combining two organizations.

Be flexible and agile

The market is unpredictable, and even the most well-prepared companies can be blindsided by global events like the COVID-19 pandemic. To account for these potential disruptions, companies should build flexibility into their financial models and acquisition strategies, ensuring they aren’t entirely dependent on high-risk projections.

When possible, acquiring de-risked assets with stable cash flows offers more reliable value creation. Companies that anticipate these uncertainties will be better positioned to weather downturns or unexpected changes in the market.

Promote Buyer-Led Processes 

A buyer-led approach—one where the buyer takes the time to engage directly with the target company’s management and conduct in-depth assessments—is essential in M&A. The competitive, timeline-driven nature of seller-led processes often limits this crucial opportunity for deep engagement, resulting in deals that look good on paper but fail in practice.

Buyer-led processes, while time-consuming, allow acquirers to build relationships, understand the operational intricacies, and establish trust with the target’s management, leading to a higher likelihood of long-term success.

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