What makes M&A truly strategic?

Yet it is equally frustrating to leave opportunity on the table. That is why businesses increasingly turn to private equity in their growth phase to benefit from the mergers and acquisitions (M&A) experience that a financial partner can offer.

As the famed acquisitor, Jack Welch, once said: “Successful mergers create a dynamic where 1 + 1 = 3, catapulting a company’s competitiveness literally overnight. You just have to do it right.”

At Bowmark, we believe “doing it right” means taking a strategic approach to M&A. Here we look at what that means in practice.

M&A the right way

In the past five years alone, Bowmark has supported its portfolio companies in making over 100 acquisitions.

This does not mean that every company we back is destined to become a takeover machine. The goal is to ensure that any merger or acquisition – whether a company does one or one hundred – is part of a “grand design” that will deliver meaningful growth. Essentially, this means staying focused on the companies that you want to buy and not just those that are available.

Getting it right requires conviction and patience. Before we have even met a management team to discuss investing, we have spent months or sometimes years assessing the latent potential in the sectors that we know best. While our focus is on organic growth, where we do spot a buy-and-build opportunity, our aim is to support and empower management to capitalise on it to the full.

We have a focused view of the ways in which M&A should serve strategic goals - by adding talent, technology, products and services or geographies. As every company’s greatest resource is its people, let us start with talent.

Talent-spotting

A great example of an acquisition that brought in team members with complementary expertise is workspace solutions provider Instant Group’s purchase of Incendium, a corporate real estate consultancy, in 2019.

Instant Group is disrupting traditional real estate by providing customised, flexible workspace solutions to businesses of all sizes – from co-working and serviced offices to fully customised managed offices – freeing them from the need to be locked into long leases. The company is at the forefront of the shifting dynamics of the workplace market accelerated by the pandemic.

The Incendium team provides real estate services procurement, consulting and change management programmes to large corporates. By adding these capabilities, Instant is able to offer its clients a unique holistic solution combining independent market-leading consultancy, world class data and a range of delivery options to transform workspace management.

Build it or buy it?

Given the time it can take to develop bespoke solutions, even companies at the forefront of technology may find it quicker to buy in the functionality they need to spur growth.

Field Service Management software company, Totalmobile, whose Software-as-a-Service (SaaS) supports mobile workforces, achieved this with its acquisition of Cognito iQ in March this year. By undertaking its largest acquisition to date, Totalmobile was able to add best-of-breed real-time performance analytics to its capabilities and offer this to over 1,000 existing customers.

Totalmobile has also taken the strategic approach to M&A to gain access to new markets. By buying GeoPal in February, it acquired a product designed for a specific vertical market – contractors to infrastructure and utilities companies – that will deliver strong recurring revenues from construction, environmental and facilities management sector clients.

Another Bowmark-backed technology business, Node4, acquired Secura in 2019. This strategic acquisition enabled the cloud, data centre and communications managed services provider to broaden its reach in the SaaS market, adding highly skilled employees and over 100 customers. Node4 was acquired by Providence Equity Partners in March this year.

Going global

Over the past 20 years, we have helped many of our portfolio companies expand into Europe, the US, Asia and emerging markets. Never a step to take lightly, internationalisation is challenging but potentially game-changing for small and medium-sized UK enterprises looking to expand their addressable market.

Autodata is one of the world’s leading providers of technical information to automotive professionals. The company’s proprietary database gives workshops access to the essential information required to carry out service and repair work, in a world of ever-increasing model proliferation and complexity.

When we backed Autodata in 2014, an ambitious plan to penetrate new markets was successfully introduced with three acquisitions in France, Sweden and Finland. These strengthened the company’s European footprint and created significant barriers to entry for potential rivals.

Culture club

Mergers also bring changes for employees and put pressure on working relationships. Considering the human impact of a transaction is key to its success. Whether it be talent, technology or geography that is driving the deal, cultural fit may ultimately be as important a factor in value creation as the underlying business opportunity.

We work closely with our management teams to cultivate inclusive environments, where workers are fully aware of their company’s strategy and progress. Two tools that we have found useful are internal surveys (to improve corporate leadership) and broader ownership of sweet equity, increasing the number of people who participate in financial success. As a result, the Glassdoor corporate approval rating for Bowmark’s portfolio companies averages 4.2 out of 5, a great achievement for businesses going through major change.

Buy-and-build strategies are proven means of achieving rapid growth in the mid-market. However, being selective as well as swift is essential when choosing an acquisition target that will build value in the long term. If you are considering private equity investment to drive growth, we recommend zeroing in on the possibilities (and pitfalls) of an acquisition strategy before selecting your financial partner.