Post COVID-19: A wave of restructuring and M&A activity to expect and get ready for

Jul 28, 2020 11:51:47 AM

We have entered into a major shake-up of the economy, possibly of a magnitude of the great depression or the post WW2 period. Although major corporations have published better than expected Q2 reports recently, the market situation has made many companies insolvent and several governments have introduced legislation to avoid hostile foreign take-over’s of their countries’ otherwise proud and normally thriving businesses.

We at Centigo expect there to be a major wave of M&A activity soon, similar to events following other major downturns and subsequent recovery periods. What could boost this wave is the ongoing quantitative easing in combination with low interest rates.

The current level of activity is very low, due to difficulties in conducting physical meetings, a need to re-check availability of dry powder funding, as well as a gap between sell-side and buy-side regarding valuation – somewhat of a waiting game. These obstacles may be overcome relatively quickly, meaning that buyers and sellers need to be well prepared to act on opportunities which are being analysed right now or will come up gradually in the next few months and quarters.

Centigo helps companies succeed in business critical cross-functional changes. Our unique way to operate and serve our clients is particularly relevant to organisations which need to grow or change rapidly with sustainable results. These needs are very typical in M&A integration projects, ie to capture and analyse opportunities and subsequently convert them into good businesses and outstanding stakeholder and shareholder value.

In the M&A context it is critical to accurately define the changes required to make the new business a thriving value-generating organisation, and to have the capabilities to plan, organise and lead the most critical changes successfully.

Our experience – which includes carve-outs, acquisition integrations, JV’s, outsourcing deals, new business area launches, scaling of start-up’s, operational and functional due diligence – is that this change process by nature is “agile”. Agile in the sense the way of working must be rapid and adhere to a fast paced rhythm, which in turn requires the team to be well-coordinated and focussing on first things first. Based on Centigo’s naturally agile way of engaging with clients, we have defined and established an approach which supports M&A projects through operational due diligence, pre-closing mobilisation, transition, transformation and value adding innovation. This approach injects energy and momentum to the M&A power team, and provides experienced orchestration of the areas of expertise in the team (eg legal, audit, tax, funding stakeholders, and subject matter expertise). We believe that the M&A context is about building businesses and develop them to generate higher value. This is the essence of entrepreneurship combined with professionalism. Since we at Centigo represent entrepreneurship in each and every employee, we share the values of the growth-oriented executives who often are hand-picked by the buy-side to lead the first years of changes.

The pandemic has led to restrictions in travel and much fewer face-to-face meetings. We anticipate this to be part of the new normal over a foreseeable future. Having led transformations through the lockdown period, we have identified some key success factors for going through a post-acquisition transition and transformation in this new context:

Mobilising the team: Time is scarce through the M&A lifecycle. The new normal includes working in a virtual format which requires a well-orchestrated power team with members who not only know their areas of expertise but also know how to collaborate effectively and understand each other’s value adding roles. Not everyone is used to the virtual way of working in a time critical project. In addition, a team with representatives from several companies may introduce a plethora of technologies which in effect complicates information sharing and collaboration. The ability to orchestrate a virtual way of working and having access to a secure and effective digital collaboration platform are keys to success.

Planning the rapid change journey: Most leaders agree that an agile and responsive corporate culture and way of working is particularly valuable in a dynamic business context. The road of the anticipated economic recovery – which nobody reasonably can predict the shape of (V, U, L etc) will be paved with risks and opportunities. Regardless, M&A projects often need to be agile in terms of being constantly time-boxed, having to focus on first things first, working on different scenarios in parallel and all along keeping an eye on what the end goals are. This context is not in everyone’s taste but very much what agile is about, at least in the dialect that Centigo has adopted. The power team members need to be professionals who master their areas of expertise and also understand how to co-work effectively in this dynamic context.

The agile mindset and way of working also come into play when planning the transition and transformation. To rephrase General Ike Eisenhower “Plans are nothing. Planning is everything.”; the planning process helps the power team and its stakeholders to identify and be prepared for potential risks and opportunities along the rapid change journey that typically is required by investors during the first year after closing.

To go through an effective and rapid change journey –  encompassing core processes, support functions, customer and supplier relationships – requires consideration of all core elements of an organisation’s capabilities. Centigo has successfully applied a holistic philosophy and approach that we call Business Wellness (see illustration). The horizontal axis emphasises the culture, leadership, performance and governance aspects and that these need to work in harmony with the essence of the company’s business logic (strategy, position in eco-system, differentiators). The structural capabilities on the vertical axis (business processes and enabling technology) support and enable the business logic for performance and differentiating customer offerings.

Immediately after closing, it is essential for the rapid change journey as such and for the company as a whole to immediately adopt a productive culture and good habits based on sound values. The transition and transformation team need to embody and act as ambassadors for the new company culture, habits and values. The rapid change journey of a post-acquisition or merger integration benefits significantly from a growth mindset and entrepreneurial spirit, to make the organisation resilient and motivated to execute what is required to turn around and/or transform the business to be more value adding.

Transitioning, transforming and innovating: Transition after closing is about getting started and stabilised, injecting energy and leadership as well as a vision of the target state and roadmap ahead for the rapid change. Transformation means to make improvements and often investments in enabling capabilities (systems, harmonisation of processes and roles, supply chain and sourcing optimisation etc). On top of making such significant improvements to the already existing business, the buy-side of an acquisition would also look for opportunities to add additional value through innovation. In the M&A integration context, Centigo helps clients to innovate by…

>  adding digital capabilities (AI, IoT, blockchain, robotics, process integration, e-commerce, etc) to customer offerings and into one’s operations

>  introducing new business models (eg moving from products to solutions, access/subscription/cyclical models)

>  positioning towards a key sustainability theme (through products/services or ways of working)

  • >  finding relevant collaboration partners (strategic partnerships, alliances)

…all of which to make the company higher valued and attractive come the day for harvest and potential divestment. This innovation should ideally start already before signing and closing by having hypotheses defined and a plan to explore such opportunities in parallel with the transformation of “as-is”. Centigo has during the pandemic helped the management teams of several companies to ideate and create. Typically this would be in a face-to-face format, but through Centigo’s digital collaboration platform combined with facilitation skills and a structured yet agile approach, the results have been as good as or better than in a normal workshop series. The time not spent on travel also allows for a series of shorter workshops as opposed to long away-day like sessions in which everything is expected to happen. By new ways of working and learning how to master these, adversities can be turned into advantages.

Getting ready to catch the waves of the post-pandemic restructuring will need the application of different skills and expertise depending on your M&A strategy and position. Businesses reach out to and rely upon Centigo every day when they realise their changed circumstances now dictate that informed, experienced and authoritative thinking is required. To find out how Centigo can help you catch the waves of opportunities effectively and safely, please feel free to contact us.

Contact Ragnar Agnell

Read the previous article on Post Brexit

Read the third article on COVID-19

Tags: Innovation Agile Centigo_UK COVID-19 M&A Transformation