by Elizabeth Kaske and Matthew McGonule
Despite high capital costs and high macroeconomic uncertainty, 70% of the most confident global CEOs We are betting on a merger and acquisition (M&A) comeback in 2025. However, to escalate value creation and total shareholder profits (TSR), companies may need to fundamentally change the trajectory of their corporate strategy.
Enterprise Strategy Shapes the M&A Approach of a Company
Business schools teach the basics of strategy. The CEO and the board are leading the enterprise strategy to achieve significant change using various pillars, programs and initiatives to drive TSR. But we still hear about frequent disconnections from enterprise strategies and frequently disconnections across the organization.
Our work on thousands of M&A transactions reveals five actions that trading teams can take to improve results.
1. Create a powerful and strategic game plan.
2. Allocate capital based on the enterprise strategy backed up by data.
3. Use artificial intelligence (AI) to gain a competitive advantage.
4. Tap Trading Team Knowledge.
5. Convey contract papers early.
Action 1: Get a strategic game plan.
Best in class strategy and business teams always have their fingers in the pulsation of growth drivers. They prepare annually with plans to acquire growth through organic means such as new products and existing customers and existing customers, as well as inorganic means such as M&A, joint ventures, and strategic alliances. This strategic plan should inform most M&A decisions and help you break deadlocked decisions if the right deal lands on the corporate development team’s desk.
Capital allocation
Many companies are able to develop strategies, and many business units are capable of creating investment cases for programs and initiatives. However, these companies may still experience challenges when linking strategies and opportunities together. Effective capital allocation strategies incorporate enterprise strategies to help decision makers plan, choose, manage and evaluate investment opportunities.
Action 2: Allocate capital based on data-backed enterprise strategies.
Within the context of M&A, this means having a fact-based, data-driven approach to volume, type, and focus areas (market, product, geography) for planned transactions within a specific time frame. Opportunistic transactions pop up and decision makers should prioritize requested capital, return on investment (ROIC), internal rate of return on return (IRR), revenue and balanced scorecard transactions for financial metrics such as strategic importance, customer satisfaction, and business continuity risk.
Trade procurement
Effective acquirers constantly develop and update their target’s powerful pipelines through a variety of means.
Yes, having a strong relationship with an investment bank that knows your sector and knows which assets are on the market will help. However, the business leaders in your organization know the business best. The effective serial acquirer business unit president identifies early potential goals and uses relationships to create opportunities for corporate development.
Action 3: Use AI to raise your legs.
To stay competitive and maximize the potential for acquisitions, large trading teams are increasingly turning to AI as a strategic tool to enhance trade sourcing and improve efficiency and effectiveness. Specifically, AI is as follows:
• Analyze market trends
• Identify promising targets
• Predict outcomes
• Map related
• Evaluate emotions
• Provides automatic alerts
• Streamline due diligence
• Promote collaboration
Companies can use AI tools such as Competitivenessaccomplish these tasks.
Action 4: Explore the expertise of the deal team.
Transactions can be launched in a variety of contexts, including market expansion, technology acquisition, strategic partnerships, and more. To develop your trading strategy, use your trading team and advisor Brain Trust to navigate the complex journey from initial target communications to evaluation, negotiation, and final bids. There’s nothing too much detail with aligning sequences, planning offers, counter offers, and roles and responsibilities. These tactics streamline the process, limit resistance and contribute significantly to successful trading.
Preliminary analysis
While valuation, business modeling and benchmarking are fundamental, business leaders should not overlook their importance. Preliminary analysis is important in ensuring that the expected transactions lead to value creation and TSRs designed to achieve by enterprise strategies. In addition to effective data-based analysis, this early stage is when integrated leaders need to be introduced into folding, rather than the feelings of executives who may want a deal to happen.
Action 5: Early communicating your transaction paper.
Clearly documenting investment papers, valuable drivers, integration strategies, and resources is a key practice that helps to promote subsequent stages of the trading journey after intent is signed, diligence begins, transaction documents are signed and transactions are closed.
By taking these strategic actions early in the trading lifecycle, companies can confidently implement M&A and corporate strategies, enabling value creation and increased TSR. Companies waiting for these areas are risking missing out on valuable time to quickly realize their value and erode transaction value after closing.
learn more On how the Ey-Parthenon Mergers & Acquisitions team can help businesses grow and compete with strategic planning, trading sourcing, due diligence and AI-powered platforms.
Elizabeth Kaske Ey-Parthenon Americas Mergers and Acquisitions Leader, Ernst & Young LLP.
Matthew McGonule I’m Ernst & Young LLP, Principal of IS EY-Parthenon Transaction Strategy and Execution.
The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the Global EY organization.
