EPIC Systems CEO Michael Higgins says he looks at M&A as a tactic not a strategy.
"For me, the foundation before you get to M&A is, Do we actually understand strategically what it is that we're trying to get done?" Higgins says. "Do we have goals and objectives set out? Do we understand really and truly where we want to play and how we are going to win? What capabilities are necessary and what enablers to foster and support the strategy that we have in place? If you don't understand that, then you potentially fall into the trap of, a deal shows up and you just modify your strategy to fit the deal. That can be somewhat dangerous as opposed to the other way around is that you really know where you want to go."
Speaking at the St. Louis Smart Business Dealmakers Conference on a panel titled Winning the Deal: Considerations Beyond Price, Higgins says when a company understands how a deal fits in as a tactic, then there are a number of reasons M&A could work. Those include geographic expansion, product line expansion, acquisition of customers, acquisition of capability for execution, leadership acquisition, and culture change.
"Ultimately, what that boils down to for me is a buy versus build decision," he says. "What is the speed at which I can get something done? And what is the cost at which I can get something done? Speed is a critical factor in today's world. And so, from an M&A perspective, it allows you to make great progress very quickly if you find the right deal."
When considering an acquisition, Higgins says there are a number of factors, from an operations standpoint, that go beyond price. One of them is an internal issue a company looking to acquire needs to confront before considering a deal: whether the company has the capability and the capacity to execute an acquisition.
"In a landscape where you have multiple potential opportunities that come up, you can't do them all," he says. "You don't have the bandwidth to do all the things that you would like maybe at the times that they come up. So, the first hurdle becomes, internally, do we have the bandwidth to actually do this."
If a company only has a certain amount of bandwidth and sees, say, four potential deals, there's a question as to whether the company takes the one that's right in front of them knowing that there's the opportunity cost and taking it means they can't work on the others that have happened or are available. Is there enough value in the deal to drive getting it done?
"Organizationally, we actually turned down a deal a while back," he says. "It fit strategically, but bandwidth-wise, we had other things going on and it didn't create the kind of longer-term value that we were actually looking for."
Externally, a top consideration beyond price is culture because it's people that get things done.
"I think there's probably not a person in this room who has not been involved in a deal that your gut didn't tell you at some point in time, I'm not a hundred percent sure that this actually makes a lot of sense. But you went ahead because on paper it actually looked really good but the culture didn't line up. And how did that work out?" Higgins says. "Probably not very well."
Another element beyond price is around both the deal structure and the organizational structure. When a deal is structured, it's making sure the people you're working with are willing to align their interest with the buyer's interests financially so that everyone is working towards the same goal
"If you walk into the deal in your working at odds, or you haven't created the right motivation, you're not going to end up with the right result," he says. "And organizationally — and I think this comes down to truly understanding what people are trying to get out of the deal — building an organization collectively that puts the best people in the best seats to actually deliver on the combined results that you expect to get."