Here at Alpha, we think 2021 will be the year where management teams focus their M&A efforts on identifying strategic “bolt-ons”. These acquisitions will bring specific skills related to product, sector and geography. There will likely still be a couple of mega-mergers, those won’t go away, but the primary focus of Management and Corporate Development functions will be how to evolve rather than recreate the business model.
Which Firms Will Likely Be Popular M&A Targets?
Firms Which Are Strong Candidates for 'Bolt-On' Acquisitions Can:
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Explain how their staff, technology and product set is organised to meet the needs of the highest-value activities for a specific client audience
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Demonstrate how their IP and skillsets underpin profitable and differentiated products
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Showcase an efficient operating model with multiple paths for growth
1. Are simple and targeted in what they do
A focused product set that serves a specific client segment is an indication of a well-run business. Asset and Wealth Managers are expected to use recognised third-party systems – this both simplifies the due diligence phase and any subsequent integration. Some level of in-house built technology and IP which delivers a superior customer experience is seen as a plus for Platform businesses. Client relationships, partnerships and any outsourcing should be simple to explain. An easy-to-understand relationship with clear value to both parties gives confidence that it will last.
2. Create Unique IP
Much of the value in a bolt-on transaction depends on the target having valuable IP. We often see this sitting within:
- A piece of technology which is built in-house,
- A capability that sets the business apart from its competitors (e.g. a platform with a discretionary fund manager capability), and / or,
- Product / geographical expertise that is scarce in the market. Hot topics are Alternatives and ESG, plus continued consolidation in the wealth and platform spaces.
3. Ensure an efficient and scalable operating model is in place
On any deal, significant time is usually spent on determining the target’s scalability. While the target business will have proven itself at a certain size, it is often unclear whether its systems and processes are sufficiently robust to support growth of the business without requiring a significant investment in additional staff.
A buyer will look for an operating model with:
- Sensible use of outsourcing,
- Technology that is proven to scale, and
- A track record of growing without requiring many additional staff
Management will be able to talk to any historic operational issues and how they have been resolved, and show a change programme and IT roadmap that will enhance the business
In Summary
Smaller firms that nurture their uniqueness while remaining operationally efficient are likely to be successful irrespective of M&A activity. These characteristics will make certain businesses a target of the larger firms, something that if done executed well can be value accretive to shareholders of both businesses.
To learn more or speak to one of our experts in mergers and acquisitions, please reach out to Alpha.
About the Authors
Rob Owen
Associate Director
Rob works exclusively on transaction related projects, specializing in identifying value creation opportunities. He often works on transactions which will result in a significant change to the ongoing business, either as a result of an integration and delivery of operational synergies or as part of a divestiture and carve out. Rob has worked in London and Hong Kong and advised on 60 transactions.
Will Sammons
Associate Director
Will focuses on supporting clients throughout the various stages of pre-deal due diligence working with them to develop their overall strategy, identify potential targets, assess the strategic fit, and plan for a successful integration. He works closely with global clients to help define their long-term strategic vision and execute on various organic and inorganic transformation initiatives to successfully achieve that vision