Evaluating M&A Opportunities as an Engineering Executive
Navigating M&A deals is a complex process, and as an engineering executive, it is crucial to understand the role of engineering in these messy processes. This article discusses the incentives of acquiring another company, the roles of business strategy, acquisition thesis, and engineering evaluation in an acquisition, the topics you should cover in your engineering evaluation, integration decisions, and being acquired.
In M&A deals, incentives can get warped, creating miscommunications that can lead to a failed integration process. The M&A team may have set goals to complete certain acquisitions that contribute a specific amount of revenue to the business. This goal would align them towards moving forward with almost any revenue contributing acquisition, even if it’s an exceptionally painful integration. The company founders or CEO can skew heavily towards acquisition-loving or acquisition-hating, complicating the process.
Strategy, Thesis, and Evaluation
A successful M&A process needs three tools in place – business strategy, acquisition thesis, and engineering evaluation. Skipping the first two steps can create an awkward evaluation process, leading to a failed M&A deal.
Business strategy plays a vital role in the M&A process and should answer several questions, including revenue and cash flow expectations for each business line, how M&A should fit into that, and the kinds and sizes of M&A you would consider. The CEO or the combined executive team must write this document, and it should be shared with all parties involved.
Your acquisition thesis should answer the complex question of what specifically needs to be true for this acquisition to fit into your business strategy. It should cover product capabilities, intellectual property, their book of business, revenue, cash flow, whether it’s a business acquisition or product acquisition.
Engineering evaluation is critical in evaluating potential acquisitions. It involves evaluating the potential product value and integration cost of a potential acquisition and uncovering significant risks. Engineering needs to be particularly careful in their assessment since they will lead the integration and operation of the acquired offering.
Integration decisions should be made while considering an acquisition. Integrating a transformational acquisition is one of the most impactful things an engineering executive can do, but stopping a poorly thought-out acquisition from moving forward is equally impactful.
Being acquired can be a challenging experience, and it’s essential to navigate it successfully. It’s critical to assess the potential product value and integration cost of the acquiring company and evaluate the risks involved.
Navigating M&A deals is complex, but as an engineering executive, understanding the process’s ins and outs can lead to a successful integration process. A clear and concise business strategy, a well-defined acquisition thesis, and a thorough engineering evaluation are critical tools in evaluating potential acquisitions. By keeping the complex incentives in mind, engineering executives can navigate M&A deals successfully.