Writing in Accountancy Age (www.accountancyage.com) recently, Scott Barnes prompted firms to consider (the) “good M&A opportunities for those that are brave, as  firms will need to look for mergers/partners given the long lasting nature of the recession and the very slow recovery.”

I don’t have any argument with that per se. Firms across professional services sectors should think deeply about how they secure the capability and how best to meet whatever objectives they have in a more (ahem) “difficult” economy.

But while some firms instinctively look for the “M&A button”, mergers or acquisitions themselves are of course fraught with risk and uncertainty and aren’t always the right answer. They can be protracted, there’s always the risk they don’t conclude successfully, and even if it happens, if the culture isn’t right or if there are other material obstacles, the net effect can be to reduce value and to be a long and painful distraction from securing core objectives.

So, what might be the right approach to determining if M&A is the right option to take? I’d suggest a two stage process.

1) Be very clear headed about the capabilities that you need at attain to reach your firm objectives (for example to grow billings or profitability by x%). Make sure this isn’t based on supposition but is about the skills, resources, market perception and other “assets” you need to have. Be diligent, challenge your assumptions and make sure you know this based on what the market thinks, not on what you guess…

2) Evaluate various strategic options to gain the improved capabilities you need. Mergers aren’t the only game in town necessarily. Other appropriate ones for the firm might be redeploying, alliances, recruitment, refocus/exit from some markets, organic building etc.

Review each option against 5 criteria (I mustn’t claim credit for these as Professor Tony Grundy, now of Henley and previously Cranfield School of Management defined them). There are a number of areas you should consider under each one, but in summary they are :

Strategic Attractiveness – How well does this fit in with what we really want, and what is important to the firm?

Implementation Difficulty – In other words, would the option be a reasonably easy thing to do (thus scoring highly) or will it involve a lot of time, additional resource, skills we don’t have a lot of, worry and sweat!

Financial Attractiveness – How much better (or worse) off do we think we’ll be with this option? What investments, other costs, and potential payback is involved?

Uncertainty and Risk – In summary, a blend of “what is the possibility that this could go wrong” and “how bad would it be if it did?”

Stakeholder Acceptability – If fee earners, referrers, clients, shareholders, lenders think the option is fantastic, then the option scores highly. If it is very likely to result in valued partners or strategically important clients exiting, it doesn’t!

Thinking through both these areas in an honest and considered way, with an input from clients, and not just based on your best guess, is a much more powerful recipe for success.


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