Corporate Strategy and How to Shape an M&A Success Story

by Diana Drake

Let’s start with food – specifically, snacks.

Many of you probably tore into a bag of candy M&Ms in recent weeks, or perhaps you popped open a can of neatly stacked Pringles potato chips to feed your urge to munch. Simple acts in the life of a snacker, right?

So much more complex in the world of business. Mars, the company that makes M&Ms, recently announced that it was buying Kellanova, the company that makes Pringles. Sweet meets savory in a $36 billion purchase.

This is but one megadeal in the landscape of mergers and acquisitions (M&As), transactions where two or more businesses consolidate their ownership and operations. Dr. Emilie Feldman, a management professor at the Wharton School of the University of Pennsylvania, who has researched and taught M&As since joining Wharton more than 13 years ago, thinks about these types of deals daily.

“Mergers and acquisitions are when two companies come together,” notes Feldman, who adds that macroeconomic factors like interest rates and inflation can impact the volume of and appetite for M&A deals. “Specifically, one company might buy another, or there might be an exchange, so they come together and create one entity from two…Corporate strategy has to do with where we set the boundaries of a company. So, do we expand by doing mergers and acquisitions, or do we want to reduce our boundaries, for example, by removing certain businesses? That’s what I’ll refer to as a divestiture.”

Dr. Feldman, who published the book Divestitures: Creating Value Through Strategy, Structure and Implementation (McGraw Hill, 2023), recently shared her insight on corporate strategy and M&As with high school students attending Wharton Global Youth’s on-campus summer programs.

A Framework of Four

In cases like Mars and Kellanova, or the example Feldman highlighted in her lecture of the Chobani yogurt company buying La Colombe coffee company in 2023 for $900 million, companies must think through essential issues when evaluating potential M&A deals. These include synergies, access to new markets and customers, technology integration and cultural fit. “There are a lot of considerations we have to think very carefully about in understanding what merger and acquisition transactions are and [how] to make them successful,” noted Feldman, adding that many M&A deals fail to create value, often due to overstating synergies, paying too high a price and poor post-merger integration.

Feldman presented the following framework to guide companies (and future M&A execs) as they ponder expanding through mergers and acquisitions:

✅ The objective: Why are you doing the deal? Fundamental to the ultimate success of a deal, stressed Dr. Feldman, is to identify areas where the two companies can create value together that they couldn’t achieve separately. These objectives might involve vertical integration, when the company’s supply chain is integrated and owned by the company; related diversification, or expansion into similar markets; and unrelated diversification, where a deal helps a company enter an entirely new industry. She pointed to online retailer Amazon buying Whole Foods health-food market as one example of a deal with lots of cross-pollination, including leveraging Amazon’s logistical expertise for a chain of markets, moving into physical retail, and increasing revenues.

✅ Due diligence: What are you buying? Due diligence, noted Dr. Feldman, is about deeply understanding the target company — its strengths, weaknesses and how it would integrate into the existing company. “There’s a whole list of issues and questions to think about when you’re doing due diligence,” she said. “Customers, markets, supply chains, suppliers, executive teams, technology, competition. Due diligence is a very comprehensive exercise to think about what you’re getting, is it valuable in and of itself, and how are you going to make it more valuable given the context of your own company?”

✅ Value proposition: How much should you pay for it? Don’t just focus on a number, noted Professor Feldman, but instead carefully assess the value of an acquisition target. In the case of Facebook acquiring WhatsApp, she asked: was $90 billion a fair price? “We have to think about [the company’s growth potential] as a key driver,” said Dr. Feldman. “Even if WhatsApp is not that valuable, not that big [on its own], maybe there are other markets, or other areas that we could expand into that might make it worth that kind of price tag…Part of it is market access, part of it is growth potential, part of it is customers and thinking about the alternative scenario” of another company possibly the acquisition deal – should you eliminate that competitive threat.

✅ Working together: How should you address post-merger integration? When it comes to the values, beliefs and behaviors that define how a company operates, the cultural differences between acquiring and target companies are often underestimated, noted Professor Feldman. “Post-merger integration is a big issue,” she stressed, pointing to Unilever’s acquisition of the ice cream company Ben & Jerry’s for $326 million in 2000. Unilever is now considering divesting the company and spinning off its entire ice cream portfolio. Among the challenges for these two very different corporate cultures: a unique business ethos led by Ben & Jerry’s strong social activism compared to Unilever’s more traditional corporate approach; different operational processes related to pay structures and production priorities; and the importance of preserving brand identity, which could be tricky when a giant consumer goods company like Unilever takes over a smaller, niche player like Ben & Jerry’s. “You can imagine a lot of differences here in terms of how these two companies are managed and how they’re led,” added Dr. Feldman.

M&A, concluded Professor Feldman, while a core part of corporate strategy, can have its challenges. Careful analysis and integration are critical to success. Want to dig a little deeper into Dr. Feldman’s research? Listen to this Wharton Business Daily podcast.

Hero Image Photo Credit: Jeshoots.com

Conversation Starters

While Dr. Feldman’s 4 step framework will help you become a savvy M&A manager, these same steps can be applied to other aspects of our lives. How so?

What is a divestiture?

Have you had any personal experience in the M&A world? Share your story in the comment section of this article.

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