Mastering the Merger - Invest with a thesis

Successful acquirers begin with an investment thesis, a statement of how a particular deal will create value for the merged company. The most compelling investment thesis is one that explains why and how an acquisition stands to improve the existing core business.

When Bain surveyed 250 senior executives who had done major deals, 43 percent confessed that they'd failed to begin the M&A process by defining a strong investment thesis for their transaction.

Merger strategy is inseparable from business strategy. Before you can create an investment thesis, you need to understand the basis of competition in your industry—basically, how your businesses make money and how they compete. Most companies compete primarily on the basis of



	Clear Channel: Investing with a thesis

	The Thompson Corporation: Rationalizing the core



	Five bases of competition

	Portfolio assessment

cost position, brand power, consumer loyalty, real asset advantage, or government protection. The best acquirers know their core strengths and target deals that enhance them.

What steps should you take to identify appropriate targets and define deals that make sense for your organization?

Determine your basis of competition
Rationalize the core, exiting businesses that don't reinforce it
Identify potential targets
Develop a sound investment thesis for each target
Develop good relationships with your targets
Focus on the right size deals and the right frequency; the best acquirers start with small deals and build up to larger ones as they develop their expertise

The message here: Do your homework, long before you approach acquisition candidates. Develop a sound investment thesis, based on a clear growth strategy and an understanding of your basis of competition. Then be prepared to act on that homework. Go after targets that you already know intimately. Go to the table frequently, but don't bite off more than you can chew.

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