Acquiring Minds Want to Know: How Can CPG Companies Extract More Value from Mergers & Acquisitions?

By John Torru, Simpactful Chair and Senior Partner, and Jill McIntosh, Senior Partner

Consumer packaged goods (CPG) companies are constantly on the lookout for acquisitions to expand their product lines, reach new markets, and increase their revenue. However, despite their best efforts, many CPG acquisitions fail. According to most studies, the stats are sobering:  Even after companies find the “right” company to acquire, nearly 7 in 10 acquisitions fail to provide value to shareholders. Simpactful practitioners are regularly called upon to support due diligence efforts.  Here are the top issues and steps you can take to avoid an acquisition.

Lack of strategic fit – A lack of strategic fit is a common reason for CPG Mergers & Acquisitions to fail. Acquiring or merging with a company that does not align with your overall strategy can be detrimental to its success and can introduce risk to the core business. Without a clear strategic fit, the target company’s products or services may not complement the acquiring company’s offerings, leading to market confusion, decreased sales, and damaged retail relationships. Additionally, without a clear strategic fit, the acquiring company may struggle to integrate the target company’s operations, which can create inefficiencies and additional costs. Simpactful practitioners are experienced in developing clear Company and Brand strategies and assessing potential M&A targets vs those strategic guardrails.

Overpaying for the acquisition – When companies pay too much for a target company, they create an immediate financial burden on themselves. The cost of the acquisition can quickly outweigh any potential benefits, leaving the acquiring company with a net loss or the inability to invest in driving demand. Overpaying can occur when companies overestimate the synergy savings and underestimate integration costs within their financial valuations. Simpactful’s finance practitioners, category, and retailer experts are experienced in validating assumptions and understanding the underlying costs that can drive poor returns.

Poor due diligence – Failing to conduct thorough due diligence can lead to significant problems down the line. This can happen because 1) Management does not want to burden current multi-functional resources with M&A due diligence, 2) Management concerns around confidentiality or, 3) Insufficient experience to ask the right questions. Simpactful often supports confidential multi-dimensional due diligence efforts. Using our team of multifunctional brand practitioners and Retail executives, we can assess common trouble areas such as:

• Target company liabilities and risks
• Undisclosed costs
• Operational issues
• Requirements to achieve intended synergies
• Risks (distribution, regulatory, IP, competitive, pricing, etc.)
• Barriers to integration (cultural, structural, contractual, etc.)
• Expectation alignment (or misalignment)

Doing so can enable clients to better prepare for acquisitions, negotiate down the deal price, and/or avoid costly missteps.

Cultural differences – When companies come together, they need to be adaptive to understand one another’s cultures and find ways to build on or harmonize as they integrate their cultures, values, and business practices. Failure to do so can lead to clashes in leadership, decision-making, and communication, which can negatively impact the acquisition’s success. Incompatible cultures can also lead to a loss of key talent and hinder the ability to attract new talent. It can be especially helpful to have a 3rd party objectively assess culture to identify requirements for success.

Failure to retain key talent – Acquiring a company often means bringing on a new team of employees. However, if the acquiring company fails to retain the target company’s key talent, it can lead to a loss of institutional knowledge and skills. Additionally, losing key talent can make it difficult to effectively integrate the two companies and to realize synergies on the timing required to make the deal payout as there may not be enough expertise to manage the integration process.

Mergers & Acquisitions can be a viable way to grow, acquire new capabilities, defend against competition, and create value. However, they can also create costly missteps and organizational challenges.

Simpactful’s M&A practitioners from both sides of the desk have the knowledge and experience to guide you across each critical phase of the acquisition process – ultimately driving improved due diligence, and helping your company assess M&A plans, successfully integrate and operationalize the combined businesses.

Interested in learning more? Simpactful can help! Contact our team today at contact@simpactful.com or 925-234-6394. Visit www.Simpactful.com