The business buyer’s guide to value creation

What’s the goal of any business acquisition?
There are, of course, any number of strategic considerations that go into M&A deals. Some are purely financial, others are market-led as the buyers pursue horizontal or vertical integration, others are very nuanced and unique to specific deals.
But the one overarching aim is almost always: the creation of value.

Any acquisition will have the ultimate goal of bringing one entity (the target business) into an existing entity (the buyer’s own business) and, ultimately, increasing the value of both.

Sometimes the simple process of adding the product lines, service offering, technological capabilities or client base of the target company will be enough to significantly bolster value at the buyer’s business, but more often than not, buyers will be seeking to build value further still once they’ve completed the acquisition.

Broadly speaking, value creation can be categorised under either short-term or long-term value creation. Short-term value creation (often referred to as ‘quick wins’) covers the steps that are taken in the immediate post-deal period to quickly build value, either to achieve specific short-term goals, such as getting the company out of debt, or to lay the groundwork for further value creation.

Long-term value creation covers the steps taken beyond this point. This includes the first one to three years post-deal, where the buyer is meeting some of the early objectives that were set following the acquisition and beginning to execute their strategic plan. As well as longer-term plans identified in early planning and new methods of value creation that occur naturally over the course of time.

Long-term value creation is likely to involve the steps that will build the most value, but often they will not be possible – or will be harder to achieve – without the steps taken to achieve quick wins and rapidly set a new acquisition on a strong growth trajectory.

Pre-deal preparation

Following this logic even further, we come to perhaps one of the most underrated and wrongfully neglected aspects of value creation: pre-deal preparation. Even before a deal is completed, there are valuable steps that buyers can take to lay the groundwork for value creation and ensure that they and their target business are best-placed to secure both quick wins and long-term value creation once the deal is finalised.

Align acquisitions with a broader strategy
Fundamentally, at the very earliest stages of an acquisition, buyers can ensure that acquisition targets fit with the strategic vision behind their M&A remit. Developing a well-defined target profile and pursuing businesses that are a good strategic fit will bolster a buyer’s chances of targeting deals that are likely to generate strong synergies and opportunities for value creation.

Use due diligence to highlight priority areas
Due diligence isn’t just for digging into the finances of a target company and the legal implications of a deal, it can also be used to highlight areas where the buyer can build value post-acquisition.

The due diligence process can be vital for identifying critical value drivers and opportunities for improvement – such as synergies, opportunities to expand services, areas where the business can be streamlined – which can then be prioritised.

Once a list of priority areas is drawn up, the buyer can begin to plan for how they can act on them in order to best realise the value creation potential once the acquisition has ultimately completed.

Of course, due diligence is used to flag up risk areas that could harm a business’ profitability, subsequently making it easier to, for example, remove inefficiencies or cut waste.

Develop a detailed plan
With key value drivers already identified, buyers can get further ahead of the game by developing a detailed plan for integration and value creation post-acquisition. This is likely to involve outlining specific initiatives to increase value - such as through operational improvements, methods of increasing or diversifying revenue, synergy capture and/or cost savings.

This plan should focus on key questions around these value creation methods, such as “what” they are (the objectives behind each goal), “how” they are going to be achieved (the steps toward executing them) and “when” the timeframe is for achieving them.

Performance metrics and timelines will be crucial. These do not necessarily need to be set-in-stone, non-negotiable deadlines for achieving certain things, but they can provide a vital guideline for creating value, help employees and senior staff to visualise how they can make the deal successful and set barometers that enable the ownership to gauge how the acquisition is faring and make adjustments when and where they are necessary.

Prioritise integration and alignment
As we’ve stressed previously, one of the most common deal killers often occurs in the immediate post-deal period and that is a failure to successfully integrate the target company. The integration itself may ultimately have little to do with the value creation methods identified pre-deal, but without a successful integration, these routes to building value will be irrelevant.

The crucial steps of integration are combining operations, uniting systems and, of course, aligning cultures. If achieving these things appears too difficult, or even impossible, the acquisition is unlikely to be a success – even if a deal offers numerous opportunities for value creation. This further highlights the importance of a solid acquisition profile as it ensures buyers do not waste time and money pursuing (and maybe even completing) acquisitions that are unlikely to be compatible.

However, if the two companies are a strong strategic fit and there are opportunities for value creation, then buyers should ensure they don’t become complacent and assume that integration will take care of itself. Integration is hard work, even between compatible businesses, but it is a vital process and one that will form the bedrock of future value creation.

Undertaking a proper integration process will also provide an opportunity for buyers to begin working on the early stages of their value creation plans, such as using the combining of operations and systems to begin capturing and developing synergies.

Prepare for quick wins and long-term gains
It is likely to factor in naturally to the value creation plan, but it is worth highlighting the importance of identifying which methods are quick wins for the immediate post-deal period and which are more long-term goals requiring continuous improvement and hard work over several years.

Identifying, naming and quantifying the early quick wins can help provide momentum during the post-deal period, providing the combined teams with achievable, tangible goals that can help to build morale and aid in building cohesion and unity among employees.

Having clear long-term value creation goals, meanwhile, provides higher goals for the combined business to strive towards, providing a sense of purpose early on and embedding a culture of continuous improvement that will enable the business to continue growing and striving in the long-term.

Securing quick value creation

The immediate post-deal period is one of the most vital in the M&A process and arguably the point on which the success or failure of the deal hinges. In the same way that a lack of an integration plan will likely result in integration either failing or taking longer than expected, a failure to strategise how to create value quickly post-deal will lead to a far slower rate of value creation.

Have a short-term plan
Planning for the short-term may sound antithetical to a sustainable business strategy, but having short-term goals embedded in a detailed post-deal value creation strategy will mean that value can be unlocked more quickly- subsequently making long-term value creation more attainable.

Whether it’s a 75-day plan, a 90-day plan or a 100-day plan, having a rigorous, well-structured and highly-detailed plan outlining immediate actions and goals post-acquisition will be vital in ensuring that value creation can begin quickly.

This plan should go into detail on how these quick wins are going to be achieved and be delineated by key milestones and timeframes for achieving these core goals. Roles and responsibilities should be clearly assigned and governance structures well-established, ensuring accountability, clarity and a sense of purpose.

Capture quick wins and immediate synergies
One of the first things to do post-deal is to get to work realising the immediate value creation methods that were identified in the pre-closing period. These are likely to include cost synergies, such as eliminating redundant functions or consolidating suppliers, which can rapidly deliver cost savings if implemented efficiently and with minimal disruption.

Away from mere cost-savings, early operational synergies that can help to boost value are also vital to unlock. This could include streamlining some key processes, realising cross-selling opportunities or integrating sales channels.

Address leadership and talent
Another key early step is to evaluate the personnel in place at the business and assess any steps that need to be taken, such as securing top talent, keeping managers incentivised and motivated, identifying areas where new hires need to be made and streamlining where necessary.

Gaps in key leadership positions or a lack of critical skills in an important area of the business can be highly damaging, not just to short-term value creation, but also to integration itself.

As a result, any gaps will need to be filled quickly and effectively and upskilling may be required as individual employees and teams adapt to new processes or systems introduced through the acquisition.

Improve financial analysis and planning
One of the most vital components of value creation is being able to plan, analyse, track and forecast the business’ financials. Planning and forecasting will be crucial to creating a convincing, defensible value creation story (more on that below), while improved analysis and tracking will mean the business is better able to monitor both short and long-term value creation.

Incorporating digital tools such as AI to power data-driven insights on performance and financial forecasts can improve the efficiency of a company’s financial analysis and planning, enable better decision making and, ultimately, greater value creation.

Create a compelling, convincing value creation story
Practical cost saving and operational steps are, of course, crucial to securing quick value creation. But another early step of critical importance is slightly more complex: creating and communicating a value creation story.

A value creation story outlining your short and long-term planning, key targets and the ultimate vision for the business will help to ensure that key stakeholders - including customers, clients and employees - are on board and engaged with the plan and confident in the business’ ability to create value.

This will be an especially important step if the business is seeking to secure investment for its value creation strategy. Existing and potential investors will need to see that the business has a well-defined vision and a strategy for achieving it, otherwise they are unlikely to take the risk of investing their funds.

Long-term value creation

With the immediate post-deal period out of the way, the focus will then naturally turn to implementing long-term value creation strategies. This ought to be based around a detailed and highly-structured value creation plan.

This plan will identify key long-term opportunities to drive improvement and value creation, potentially focusing on areas such as process optimisation, digital transformation, new product development and owner decentralisation.

While the plan should, of course, contain a significant amount of detail and structure, it is also important that it be flexible as well, leaving room for adjustments in the case of unexpected events or for the business to take advantage of previously unforeseen opportunities.

Expand synergies
As the business moves from short-term value creation to a more long-term strategy, the synergies that the buyer is seeking to realise will naturally shift as well. More complex synergies, such as IT integration, cross-selling, market expansion and supply chain optimisation, are likely to be time-consuming in their implementation - but are likely to drive greater value creation than the early short-term gains.

Highlighting the importance of a flexible approach, many synergies that can be attained through a merger are not likely to be foreseen years in advance. Instead, some may be in direct response to economic, cultural or industry shifts that may, for instance, lead a business to expand into a new or adjacent market or incorporate new digital tools.

Assess and manage integration efforts
While the crucial work of integration naturally occurs in the immediate post-deal period, the process does not simply end there. It will be vital to monitor the continuing cultural and operational integration of the target business to ensure that the alignment is continuing to develop successfully.

Change management is a term encompassing the continual assessment of changes in the wake of an M&A deal – covering both rapid and long-term changes, incremental adaptations and disruptive alterations.

For a more in-depth look at post-deal integration and change management, check out our exclusive insight on the integration process

Define and track KPIs
Of course, it will be just as important to assess how the business is performing in order to ensure that value creation methods and growth strategies are bearing fruit. This will require defining and monitoring the business’ key performance indicators (KPIs).

KPIs are quantifiable values that demonstrate how well a business is achieving its core objectives. While there are a number of common KPIs, the most relevant indicators are likely to differ broadly from business to business, depending on a multitude of factors (size of the business, age, business model sector).

Common KPIs are financial indicators (profit and revenue figures, return on investment), sales figures (sales growth, conversion rate), marketing statistics (web trading, lead generation, return on ad spend), operational efficiency (delivery success, production efficiency) and customer service (satisfaction, retention etc).

Defining and monitoring these key indicators will not only mean that the business is able to accurately track its performance and value creation, but will also put it in the best possible position to adjust if any elements of its strategy aren’t working.

Invest for long-term growth
Growth is, of course, vital for creating value and attaining long-term growth will be pivotal to increasing the value of the business over time. Whether the business is targeting organic or inorganic growth, investment will typically be required to ensure that the business can capitalise on the best opportunities.

Long-term growth drivers are likely to be split between the typical growth initiatives – exploring adjacent/new markets, product diversification, research and development – and more high-growth levers, such as ESG investment, AI adoption and M&A activity.

Identifying what opportunities the business will seek to target, deciding on a source of investment, securing that investment and deploying it effectively will be the key steps for attaining long-term growth.

Naturally, this will require significant advanced planning and a well-thought-out strategy. But, as usual, the business should also seek to ensure it has the flexibility and awareness to identify and act on previously unforeseen growth opportunities.

By planning for long-term growth, rather than constantly targeting short-term growth opportunities and quick wins, the buyer will ensure that they develop a resilient business that is prepared for the future.

Plan to be exit ready
Discussing exit strategies in the wake of an acquisition always sounds odd, but the simple truth is that ensuring the business is prepared to be sold at any time is in fact one of the best ways to add value to the company.

A proper exit strategy takes a minimum of three years to execute and should ideally be carried out over five years. Clearly, this is something that requires significant forethought and can’t be rushed – otherwise the sale is likely to be a very low value one that renders all the owner’s previous hard work pretty much pointless.

As a result, owners who haven’t got their business to a point where it is ready to be sold risk missing out should they decide they do wish to exit or if market conditions emerge that make it highly advantageous to pursue a sale.

If a business isn’t ready to be sold, then its value is severely diminished – simply due to the vastly increased workload that any buyer would be required to undertake post-deal. In the vast majority of cases, though, a buyer will simply pass on a business they do not consider ready.

So, in order to ensure that the business’ value is maximised and that they do not miss out on exiting the business at the right time, owners should seek to ensure that their business is ready to be sold quickly, even if they are not planning on handing over the reins any time soon.

This is where the value of retaining a third-party Certified Exit Planning Advisor (CEPA) becomes clear. Coordinating the exit planning and value-building process requires a strategic, cross-functional approach that goes far beyond day-to-day operations. A qualified exit planner acts as a neutral, experienced guide - someone who understands how to align personal goals with business realities, prioritise initiatives in the right sequence, and coordinate advisors across legal, tax, operational, and financial disciplines. They help ensure that value isn’t just created, but captured. Most importantly, they keep the process moving forward with discipline and objectivity, reducing the risk of costly mistakes or missed opportunities due to owner inaction or blind spots.

As exit preparation is an exhaustive process that takes years to properly execute, there are naturally a huge number of steps to achieving exit readiness. However, some of the core steps include scaling up the business, improving its resilience, building a strong management team, instituting process documentation and, perhaps most importantly, decentralising the owner.

If a business is reliant on its owner in order to operate on a day-to-day basis then its performance is likely to suffer and it is, in essence, unsellable. This does not mean that owners should seek to make themselves redundant to the business, however, if the owner can’t, for example, take a month off on holiday without the business suffering, then clearly it is over-reliant and not ready for sale.

Find out more about exit preparation:

The importance of decentralising a business owner

Tips for scaling up your six-figure business prior to a sale

Making your business a more attractive acquisition target

Book a free call with one of our certified exit planners

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