An appetite for M&A

Executive summary

Food companies, faced with new and challenging market forces, are changing their strategic approach to growth. For many, this is underscored by a focus on capabilities as a driver of how to organize and operate their businesses for competitive advantage. For winning companies, this focus on capabilities is informing their growth path, including how they approach mergers, acquisitions, and divestitures.

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Diligence with a capabilities mindset

• What is unique about the target company’s capabilities system? How does it create value for customers?
• How does the target company’s capabilities system differ from our own?
• If we are buying the company for its product and services portfolio (a leverage deal), are we sure that those products and services will thrive within our current capabilities system?
• If we are acquiring the target company for its capabilities (an enhancement deal), will we be able to preserve and integrate them?
• How will this newly integrated entity deploy and execute its evolving capabilities system? What are the risks of a poor strategic fit?
• Which facilities, processes, suppliers, and employees are critical to bring on board, for the sake of a separated, combined, or integrated capabilities system? Are any of them (or any key customers) vulnerable to poaching by competitors?

Conclusion

M&A is likely to become increasingly important, not just in growing food companies, but in streamlining and focusing them. Making capabilities-building the foundation of a robust deal decision-making process will not only improve the likelihood of transaction success — it will also better equip companies to compete in today’s hungry food marketplace. Once a strategic rationale is set, a robust and objective deal process that addresses and reiterates the value drivers of the deal — i.e., strategic rationale, cultural agility, price and terms, and value capture — will ultimately help food companies achieve their expected value. Getting those deals right is important. Not only do investors tend to judge companies harshly when deals fail to achieve their objectives, but gaining and keeping a competitive advantage is critical in everevolving industries.