Growth, great achievements and learnings for Midagon’s M&A services
An exceptional year for Midagon’s M&A services came to an end and a new one has started. The feeling is relief. It turned out to be a successful year after all. In March, a couple of projects were briefly paused, but the disruption proved short-lived. Critical and transformative M&A implementations must go on, despite uncertainty and risk. The experience and insight that we offer are exactly the right tools for managing them.
In 2020, we had teams working on several large integration programs as well as a few major separations. For some clients, we were involved in both separation and integration programs. At one of them, the good work that was done at the separation is now paying off in a smoother integration. At another client, we were supporting the creation of five new companies during the last days of the year.
We also supported clients in ICT and data due diligence. Our consultants advised clients in integrating strategic acquisitions, acting as integration program and project managers, or key stream leads. These were most often ICT or finance roles. We helped a “serial acquirer” client, who had become very effective in closing deals but had considerable value locked in delayed integrations, to create an integration guideline to streamline their finance integration. In addition, we led several country legal mergers and were involved in a supply chain integration in the biggest acquisition in Finland's corporate history.
2020 proved in practice that complex and challenging implementations (the term includes both separation and integration) can be carried out by remote teams. Most companies don’t have the resources and skills to manage major one-off implementations, or the variety of implementation cases that continuous restructuring activity requires. This is where an external consultancy can help, but only if they have the right skills and experience and work well as a team. Midagon has grown to be one of the largest M&A implementation consultancies in Finland because of our experienced team and proven track record of successful implementations.
Thorough ICT due diligence is pivotal for success
We faced some practical frustrations in 2020 that we hope will become less frequent in the future. For us and implementation teams in general, the fact that planning and decisions are often made at the due diligence stage based on inadequate information remains a common complication. Technical complexity is often underestimated, and the true scope and complexity may become clear, only after time schedules for implementation have been fixed. We sometimes also see the consequences in our other projects that are not directly M&A related. For instance, they can occur in ERP implementations, where business complexity turns out to be much higher than expected due to past acquisitions that have not been fully integrated.
The visibility of the technical complexity is often lost through outsourcing. We’ve also found that many acquirers and targets were not as well positioned for integration, as they may have thought. We continue to find large numbers of near-forgotten legacy systems “under the carpet”. However, acquirers are generally becoming more aware of the cost and impact of the ICT integration, and more likely to carry out thorough ICT due diligence.
There are also new kinds of frustrations that may well become more common. The complexities of modern identity management come as a surprise to many implementation parties. Cloudification creates new challenges in M&A implementation, since the technology is new, and few suppliers have adequate practical experience.
In 2020, companies that were already far advanced on their digital transformation journey were able to leverage their investment in technology platforms and continue building on their investments. By contrast, others remained stagnant and unable to invest. When companies from very different digital maturity levels merge, the change can be much greater than some years ago, when ICT competencies were more uniform. It’s more important than ever that the right competencies are available early during the transaction, when implementation risks, costs and timelines are first specified, and TSAs are drafted.
2020 was not only about execution, but also about sharing information and perspectives. We organized our first M&A event, “Tech Intensive M&A”, together with Hannes Snellman. The event format evolved considerably due to covid-19 restrictions. However, the content was exactly what we planned from the beginning – both hands-on and scientifically researched knowledge on successful M&A integration. Based on the feedback we received, we hope this humble start will become a regular event and a focal point for the M&A market in Finland.
As an alumna of Aalto University, I was especially honored to speak about the importance of ICT integration at Aalto Executive Education’s “Strategic Mergers and Acquisitions in 2020’s” course. In this event, as in many other occasions during this year, it was great to see that even though the majority of the participants attended the course remotely, the meeting tools allowed us to interact and have meaningful discussions.
Bright outlook and high expectations for 2021
In 2021, we expect that business-critical implementations will continue to keep us busy. In terms of the M&A market in general, liquidity is high, interest rates low to negative, central banks continue their recovery policies and the global market outlook is promising. Transactions that were paused in early 2020 have become active again, and new transactions are on the horizon. Companies with strong cash reserves are well-positioned to acquire, while many will look to unlock value and improve focus through carveouts. There is also interest in alternatives to traditional M&A, such as acquiring minority stakes.
In addition, we expect to reap the benefits of the changes that 2020 forced on us. Huge technology adoption leaps were made in 2020. They will enable us to work more effectively and with a wider reach in the future. The need to have the right digital tools is now obvious. M&A strategy teams are more likely to use highly developed portfolio management tools, which improves information sharing and transparency. Cybersecurity threats are increasingly in focus during due diligence. Physical distance is no longer an excuse for ineffective communications and poor project management. Appropriate collaboration tools are taken as standard. The basic requirements for core systems and processes that ensure full global transparency across groups of companies are widely understood. Their implementation is considered a critical part of a normal and healthy implementation program. All of these factors make M&A implementation teamwork more effective and straightforward.
This difficult past year has proven that we can work together on a global scale and create value through effective M&A implementation in the most exceptional of circumstances. As the world calibrates towards the new normal, it’s now up to us make the most of these advances and all the new opportunities that are offered. This will allow us to make 2021 live up to the already high expectations.
Professor Duncan Angwin (Nottingham University Business School, on the screen), Jesper Nevalainen (Hannes Snellman), Taru Weckroth (Midagon), Markus Lampenius (Neles), Erika Grönroos (Vaisala) and Tytti Erkama (Vaisala) at a panel discussion at Midagon and Hannes Snellman's “Tech Intensive M&A” event in November 2020.