M&A automation: comparing businesses of target and acquirer
Acquiring new business
These days, many corporates acquire other companies with new business models or are trying to integrate startups to extend the range of business models and to avoid disruption by other companies. But how do you analyze and compare businesses? Is a coarse analysis on the business model canvas sufficient to determine differences and derive activities for post merger integration? Are there any blind spots? Here are my thoughts:
Comparing businesses
In a holistic view three things describe their business of a company in a complete fashion. The strategy, the business model, and to be operational model.
The strategy defines strategic goals and measures. Strategic goals help to steer running the business, but some strategic goals also determine how to shape the business and how to create the operations for the business. I will discuss how to define and compare strategies in one of my upcoming posts, so let us focus on comparing business models and operational models.
Comparing business models
Using the Business Model Generation Methodology, you can compare two business models by comparing information from each of the model elements: value proposition,channels, customer segments, channels,revenue streams, key activities, key resources, key partners, cost structure. This gives you a set of differences on a type level, which is great. So, say, you find out that the channels are different, one is via a physical store, the other is via online store. Then you can think about leaving them separate or integrate both offerings. For department stores, we saw that combination of channels happening: buy in store, return online; buy online return in store; buy online, pick up in store.
Using the Business Model Generation methodology, you have to be aware that not only the degrees of freedom to build a business model can be the source of differentiation and disruption but also the degrees of freedom to build an operations model, which implements the business model. What is the difference? The business model is a type level model telling you what to do while the operations model is much more concrete model describing how you do it. For the department store example, the operations model would implement how you do online store ordering followed by in-store pick-up.
In addition, the strategic goals tell you how to shape the business model and the operational model. This relationship is not reflected in the Osterwalder model.
For more details on similarities of business models, please see my other blog post on elements and similarity of business and operations models
Detailing the operational model
To describe the operations model of the target and the acquirer we need details on the following core processes, their organizations and information systems:
Revenue generation and collection model or value to cash: how do we bring products to market via channels and how do we collect revenue.
Innovation processes: idea to customer value: how do we innovate.
Production operations model: supply chain to delivery.
Administration operations model: finance, controlling, facilities, HR and other administrative processes.
Keep in mind that the strategic goals and measures have to be applied to the operations model, since some of the goals help you decide how to structure the operations model. Just think about strategic goals “cost leadership” and “quality leadership”. These two goals might be operationalized by establishing operations that focus more on keeping cost low or on keeping quality as high as possible.
As we have shown here, bringing strategy, business model and operations models into one holistic model is a key ingredient for modeling a single business, but as well for comparing businesses while evaluating mergers and acquisitions. Stay tuned for more thought leadership - if you like, you can browse more thoughts on my blog page.
This is an excerpt of my book “Automation of Mergers and Acquisitions Due Diligence “.
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