M&A Strategy – Are You Playing Checkers or Chess?

Last month, I discussed why sustainable, growth-focused companies should take a programmatic approach to M&A and offered five steps to help you build one. This month, I want to slow down on one critical cornerstone of your programmatic approach – the strategic growth plan.

Why start with strategy? Think of two age-old games: chess and checkers. (You know I love a good analogy.) In checkers, your moves are typically reactionary and focused on the short term. The game is fast. Your opponent jumps one of your pieces, you double-jump them back, they triple-jump you and get kinged.

Chess, on the other hand, requires foresight and prediction. You take your time with each move. You are always thinking three, four, five moves ahead of your opponent, anticipating the sequence of moves that will lead to a checkmate. You are constantly mapping and re-mapping your future moves based on the current arrangement of pieces on the board, and when your opponent (inevitably) strays from your calculated plan, you adapt.

Chess is harder, slower, and more strategic, but (in my opinion) it’s far more rewarding. It’s also less risky – when you make a bad move, you generally have some options to recover. A great chess player enters any match with a strong strategy in mind – one that’s grounded in a thorough understanding of the opponent and the rules of the game. But the best chess players evolve that strategy in real time as the board changes and opponents make unanticipated moves. 

The same is true with a strong programmatic approach to M&A – it’s founded on solid strategy with a healthy orientation to learning and evolution along the way. This starts with (you guessed it) your strategic growth plan.

While a lot goes into a solid strategic M&A plan, in my experience there are five key components that are most critical: 

  • Cultural assessment: Deeply understanding your culture, core values and vision;
  • Investment thesis: Building a solid thesis, backed by clear measures of success, for why M&A growth is right for your company;
  • Reflection & learning orientation: Having a good understanding of your current strengths, weaknesses, threats and opportunities, and incorporating strong feedback loops to strengthen your plan;
  • Market expertise: Understanding your market and how M&A can support your competitive advantage; and
  • Readiness to execute: Ensuring you have a solid foundation of people, systems/processes and capital to execute your integration.

Let’s look at each of these areas and how they contribute to a rock-solid strategic growth plan.

Cultural Assessment

I’m going to spend the most time on this first component, cultural assessment, because it’s the most overlooked, hardest to define, and (arguably) most critical to a successful M&A program. M&A deals tend to focus on the numbers – financials, years in operation, size of workforce, and everyone’s favorite acronym – EBITDA. Of course this analysis of the hard data is critically important. But it often obscures a less tangible but perhaps even more critical precondition of success: cultural alignment. I break this down into two categories: “Hard culture” and “soft culture.”

“Hard culture” refers to explicit policies that lay the foundation for employee experience, such as pay and benefits, paid time off, dress codes, equity shares, flexible/remote working arrangements, etc. “Hard culture” is (relative to its “soft” counterpart) more easily measured, assessed for fit, and, when necessary, brought into alignment. For example, if a target company has a stronger benefits plan that employees love, one easy way to maintain stability might be to simply migrate all employees onto the new plan. 

“Soft culture,” on the other hand, refers to the shared values, working norms, internal politics, perceptions of leadership, and unspoken expectations of a team. It can also include cultural and ethnic components, particularly for companies that prioritize diversity or work with international teams. Soft culture is, essentially, the way your team experiences their work and their team. Think of it this way: if you’re throwing a staff holiday party, “hard culture” is how much money you spend on the band and the punch; “soft culture” is how much fun your team has when they get there.

Here’s the rub: soft culture is both far more difficult to measure and ultimately much more important in ensuring a smooth integration. When we hear that overused warning that most M&A deals “fail,” the root cause of that failure can often be traced back to culture – whether that be cultural misalignment or inadequate attention on establishing a new, integrated culture through focused and thoughtful leadership. 

So how do you incorporate assessment of cultural fit in your strategic plan?

  • Understand your boundaries: When it comes to “hard culture,” there might be a few non-negotiables. Many of these might seem obvious, but it’s helpful to explicitly outline them in your strategic growth plan. Perhaps you’re committed to an in-office work culture – don’t acquire a company that allows working from home. Define which employee policies are truly a priority for your company and what is negotiable.
  • Set a baseline (with your own team): To build a baseline against which to assess  “soft culture” fit, you’ll have to go straight to the experts: the staff. As you’re building your strategic plan, ask your own team a qualitative set of questions to learn what key leaders and core team members value about their work experience and what they expect from their employer. Identify any themes, non-negotiables, or potential landmines, and document these in your strategic plan. 
    • Tip: It might be smart to ask a neutral third-party or survey to do this to ensure you get authentic responses.
  • Build “soft culture” assessment into your diligence process: Once you’ve identified your own team’s baseline values and cultural priorities, you’ll need a way to assess these against any future acquisition targets. While this is a qualitative process, it should be a formal one, built into your diligence process. I suggest your diligence plan includes a qualitative survey or interview process meant to build understanding of the target’s “soft culture.” (In March I shared an example of this human-first approach from one of my clients.) 
    • Tip: You might consider using an “empathy interview” format or simply create your own set of open-ended questions. 

Investment Thesis

How do you win at chess? The obvious answer is the checkmate – the moment you trap your opponent’s king in a position that enables no future moves. But elite chess players – those who already have thousands of checkmates under their belts – are always setting new goals for themselves: for example, checkmate in less than 10 moves; game play under 15 minutes; advancing in specific tournaments or competitions; etc. 

Similarly, your M&A strategic plan should have a clear definition of what “winning” looks like and how you will know when you get there. This starts with a strong and clear investment thesis, the second key component of your strategic plan.

A strong investment thesis is grounded in clear goals and metrics that tie directly to your company’s broader growth goals. In my experience, most plans define only a narrow set of goals that focus on short- or medium-term financial measures. If you’re interested in playing the long game – setting your company up for sustained value creation over time – you’ll want a broader set of goals and metrics that indicate your long-term viability. In addition to the standard financial measures, this list might include leading and lagging indicators of growth in market share, competitive advantage, brand equity, technological enhancements, “triple-bottom-line” impact, and more.

After you’ve set your long-term vision, you’ll need to spend a healthy amount of time defining a set of key measures that will help you understand whether each M&A deal will advance your company’s goals and helps you realize your vision. Importantly, these measures should be a combination of leading and lagging indicators, and can include qualitative and quantitative components. Ask yourself questions like: 

  • What measurable impact on inputs that position you for future success will you be able to measure after your next acquisition (leading indicators)? 
  • What measurable change do you see in your position or market share two, three, four years after your successful integration (lagging indicators)? 
  • How do these measures provide direct evidence that I am moving closer to my corporate vision? 
  • What is my ideal time horizon for understanding the success of this deal, and (by extension) for evaluating progress on each measure? (Remember the “T” in SMART goals – it’s for “time-bound.”)

Reflection & Learning Orientation

Just like the most successful chess players, the most successful businesses don’t have a static “playbook” for M&A activity. Rather, they constantly review, revise, and adapt their plan in response to the current layout of the board (or market). Programmatic approaches to M&A actively prompt you to revisit your strategic positioning, paying constant attention to evolutions in the market, competitors, technology, and environment so you are in a position to make minor shifts that optimize your success.

This learning orientation can help you maximize your company’s strengths and mitigate your risks and weaknesses, but it requires attention, discipline, and a growth mindset. You have to deeply understand what strengths you bring to the market that you can leverage, but you also have to be willing to hear the hard truths and take quick action when necessary. The best strategic growth plans operationalize this orientation through active evaluation of success across multiple measures. Remember that feedback loop I shared last month? This is where you put it into action. Since you’ve clearly defined your measures of success, it should be relatively easy to see where you’ve succeeded and where you’ve fallen short. 

Like all aspects of a programmatic approach to M&A, maintaining a true learning orientation requires constant discipline, hard work, and humility. There will be mistakes, and there will be deals that don’t go according to plan. When you apply a growth mindset to these mistakes, they become your best opportunities to build an even stronger foundation for future deals if you invest energy and attention into codifying your learnings and applying them in the future. 

Market Expertise

A great chess player has an expert grasp of the game, from the basic moves to the more complex rules and norms. Elite chess players have a deep understanding of their opponents as well, understanding the idiosyncrasies, favorite strategies, and approach of their competitors.

Similarly, the fourth key component of a strong M&A strategy is market expertise – having a deep understanding of the intricacies of the market you are in (or planning to enter). That’s not to say you need to have all this expertise yourself, but you do need to have a deep bench of trusted advisors on your team, your board, and/or in your network.

But expertise is meaningless until you put it to work for you. The key to operationalizing your market expertise in your M&A strategy is to translate it into a predictive model or forecast that helps you envision where you see the “puck” going and position your company to be ahead of it. This predictive understanding of where the market is headed should provide the foundation for the goals and metrics you set in your investment thesis, helping you create a realistic and attainable definition of success and defining success metrics that will maximize your competitive advantage.

Readiness to Execute

The last critical component of your M&A strategic plan is readiness. Just as a beginner chess player wouldn’t enter a match with a world champion, a company shouldn’t enter an M&A deal without confidence in its ability to execute the integration with fidelity. As I’ve written about before, strong execution involves a lot of parts – strong systems and processes, the right talent, market expertise, clear goals, and more – and all of these parts have to be attended to with precision and discipline. In football, we call this the “blocking and tackling” – executing on the less-glamorous, repetitive tasks that build muscle memory and set you up for the winning play. (I know, I mixed metaphors there – stay with me!) 

One mistake many companies make in assessing readiness for an M&A deal is underestimating the resources needed to execute with excellence. While there are the obvious costs such as purchase price, financing fees, consulting fees, systems integration, etc., many leaders fail to capture the less immediate but equally critical expenses such as hiring and turnover, cultural investments, and – perhaps most importantly – the internal headcount and resources dedicated to overseeing the integration, measuring success, gathering feedback, and iterating on the strategic plan.

Ready to Get Started?

Building, managing, and executing a strong M&A program requires constant attention, focus, and expertise. Bigger companies often resource this in-house with a dedicated team, or at least a role. But if you’re a smaller or mid-market business, you’ll likely need help from an outside partner. The G-Spire Group can help you build a winning strategic growth plan – and execute on it. We help mid-market companies:

  • Articulate a clear vision for growth
  • Build a specific and actionable strategy roadmap
  • Define and amplify your core competencies
  • Develop disciplined processes and systems for M&A development & integration
  • Codify learnings and create feedback loops to strengthen your program

About the G-Spire Group

The G-Spire Group helps entrepreneurs looking to grow through acquisition identify potential targets, negotiate with sellers and integrate the newly purchased business into their portfolio. To learn more, please visit: https://www.gspiregroup.com/.