Michael's M&A Playbook: M&A Pipeline Management and Scorecard

Mergers and acquisitions can be complicated, but there are best practices for success. The first step in an M&A process is to develop an M&A target pipeline and use qualitative and quantitative elements to assess the targets. Investment banks and advisors can help you to expand your M&A target pipeline and get a good overview of which companies are currently available in the market. Based on your company's overall strategy and your M&A approach, you can then rank the targets with the help of an M&A target pipeline scorecard. Those two steps will help you to start your journey to implement M&A as a tool to achieve your long-term strategic goals. Here are a few tips that will help you with those topics. You can download a simple Excel template for the M&A target scorecard at the end of the article.

M&A Target Pipeline Development and Management

Many companies start with M&A because somebody approaches them with a potential target. Like when buying a house, you usually should not close on the first house but take the time to check out what else is on the market. The same applies to mergers and acquisitions.

After you have determined that M&A is the right tool to achieve your long-term strategic goals, ensure that you align your approach with your stakeholders, especially the board of directors. Underline that M&A is not a quick idea of the day but helps you achieve the company's long-term goals. A few examples are industry consolidation, diversification, geographic growth, talent acquisition, better time-to-market, or other financial and tax improvements. Once your senior executive team and the Board of Directors agree, the next step is to see which interesting targets are in the market. First, discuss what you know about potential targets internally, and start talking with investment banks and advisors to get more ideas. Combining internal and external information is the best approach to developing an extended target list. Develop also a process for how you update the M&A target list regularly. There is usually quite a significant change in a short time in the M&A market. You can use an M&A pipeline management software tool to be more advanced than Excel. 

Let me summarize the steps for the target pipeline development and management:

1. Determine that M&A is a strategic tool for your company to achieve your long-term growth plans.

2. Get aligned with the Board of Directors about your M&A plans.

3. Compile a list of your targets from internal sources.

4. Start talking with investment banks and advisors to extend the list.

5. Implement a process of regular updates of the M&A target list, and consider deal pipeline CRM tools if you want to be more advanced.

The M&A Pipeline Scorecard and Ranking

Once you have a list of target companies, you need to analyze how well they fit your overall strategy. The usual topics for the assessment are strategic fit, financial performance, cultural fit, stability/volatility of results, and ease of integration. I have added the value capture idea/investment thesis to the scorecard with the highest value. It makes a big difference if you have a good idea of how to create value with the transaction. You see that this is a combination of qualitative and quantitative elements. Assess all of the companies on your target list with this M&A scorecard to see how they rank. No scorecard is perfect. Review whether the ranking makes sense when you have the results, and adjust the scorecard if needed. The M&A target pipeline scorecard ranking is also a good summary for discussions with your stakeholders. In summary:

1. Develop an M&A target scorecard, and include qualitative and quantitative elements in the scorecard. Use the value capture idea/investment thesis, strategic fit, financial performance, cultural fit, stability/volatility of results, and ease of integration as a starting point and adjust it to your needs.

2. Rank the target with the scorecard.

3. Discuss the outcome with your stakeholders, especially the Board of Directors.

Start with M&A Pipeline Management and Implement a 5-Step M&A Process

When you follow the steps above, you have completed the first step in a five-step M&A process that I'm proposing in my M&A playbook. A process-driven approach to mergers and acquisitions will make it easier for you to align it with your overall strategy, define the role of M&A, and have a value- and data-driven stage-gate process. This means there are decision points along the way of an M&A process with go/no-go milestones. The five steps in the M&A playbook are:

1. Strategy formulation and pipeline development

2. Initial discussions with the target and letter of intent (LOI)

3. Business case and due diligence

4. Negotiation and closing

5. Post-closing adjustments and integration

Here is a simple Excel template for the M&A target scorecard. You can adjust it to your company and your specific needs. Have fun with it.