24 Apr Seize the Day! The time to act is now
As of this moment, M&A activity has come to a shuddering halt as COVID-19 makes us aware of stark choices between life, death and the economy. But once the worst of this pandemic is over, M&A activity will surely return with a vengeance as organisations start repairing the damage this virus has wrought on business models and balance-sheets.
This health-driven crisis, one way or another, will inevitably rewrite the long-standing rules of business in almost every industry. With the pause button pressed on so many businesses, it represents a unique point in time for executives to reflect and rethink the way business is conducted. Many big questions leap into the mind:
- What are the industry trends that have now been accelerated by this virus?
- What are the likely changes to customer behaviour?
- How should operating models be revamped to meet the new normal?
- How can we be more adaptable and resilient in our strategy and operations?
- What lessons can we learn during this crisis that we should preserve and build upon?
- What assets are draining the balance sheet or no longer strategic?
It may be tempting to wait out the crisis, hold onto cash and not make any moves until all the answers come in. But this can be a mistake. History has shown that the risks and costs of doing nothing are always far greater.
History has shown that the risks and costs of doing nothing are always far greater
While there are many difficulties, there are also many unique opportunities to seize the day, go beyond survival mode, and take action now in readiness for the future upturn. Indeed, this is a unique moment in history for organisations to use the pandemic as the great catalyst for innovative and transformational change.
This pandemic is the great catalyst for innovative and transformational change
As executives are all far too aware, it takes too long to internally transform the things that matter most to performance – digital, technology, people, products and services. The cheaper, faster and more powerful alternative is to use M&A to buy them and bring them in. Indeed, M&A can be the big answer when it comes to turning adversity into opportunity. To get prepared a few things can get started now.
Get ready to turn Adversity into Opportunity
1. Carve-out non-strategic assets
Executives may find it surprising what a business division, a technology or a certain capability might actually be worth. Buyers are often quite prepared to pay far more for a business than the seller’s own estimate. The reasons why a buyer would pay a premium are wide and varied; too many to list out here, but in general they revolve around a buyer’s ability to exploit value from the business in ways the seller simply can’t; making them the better owner.
Organisations might have buried treasure in their own backyard without perhaps realising it. This can give a significant cash stimulus to the balance-sheet for future investing. However, achieving a premium for a divestment requires plenty of preparation. This is the time to decide what assets should go for the chopping block and start the necessary carve-out in readiness for sale. Take a look at our paper. This describes how organisations can go beyond the traditional carve-out approach and profit significantly. The time to do this is now.
Every divestment has buried treasure
2. Reconfigure your Operating Model
The great lesson from this pandemic is that organisations must become more agile, adaptable and resilient. They need to have more sustainable revenues, lower fixed costs and stronger value propositions. To do this requires a good hard look at the operating model – the firm’s engine of growth.
This is the time to put on the engineering hat and go for a deeper and more granular understanding of how the interaction of people, processes, and technology affects the bottom line. What’s called for is a deconstruction of the operating model down to its essential nuts and bolts. In doing so the goal is to seek out structure and connections in a way that logically explains the way value is delivered. Moreover, there needs to be a forensic assessment on the way this crisis has impacted value propositions and customer demand.
This is followed by the reconstruction of a working model that helps translate understanding into meaningful, decisive and ultimately more successful strategies on the way M&A can be used to propel the organisation forward.
BTD can help facilitate a collaborative operating model design process. In addition, it represents an excellent way to build the team that will be responsible for taking a business forward.
The operating model is the firm’s engine of growth
3. Reassess your Capabilities
If a firm’s engine of growth is the operating model then capabilities is the fuel. A capability is the combination of people, tools, processes and organisation design that deliver value propositions to the customer.
Organisations have hundreds of ‘things’ that they do, but there will only be a handful that are distinctive enough to stand out from everything else. These are the signature capabilities that truly matter when it comes to creating value. While products and services may come and go, it’s these underlying capabilities that prevail over time providing ultimate advantage. In other words, for a resilient and sustainable future, it matters more what an organisation does rather than what it sells.
The time is now to take a capability perspective; understand what capabilities exist and remain strong, and importantly the capabilities that have become weakened, fragmented or missing all together. To thrive and prosper into the future, an organisation must identify, understand and create a capability-driven agenda to help it combat against future political, economic and technological disruption. Any organisation that doesn’t have such an agenda is effectively mortgaging its own future.
BTD can provide the thought leadership, tools and techniques to facilitate a team-based, capability-driven M&A agenda. While many receive advice, this is the time for the wise executives to use capabilities as the fuel for future growth.
Use capabilities as the fuel for future growth
Hopefully, the tips here have given you some thought. Thank you for reading!
Senior Consultant, BTD Consulting